What Is Runway in a Startup?
Runway is the number of months a startup can keep operating before its cash runs out. The basic calculation is cash in the bank divided by monthly net burn, which is total monthly spending minus monthly revenue collected. A useful runway figure also accounts for planned hires, expected revenue changes, and the months a fundraise will take.
How to calculate it
Gross burn is total cash going out each month: payroll, rent, software, contractors, cloud, marketing, and everything else.
Net burn is gross burn minus cash coming in from customers that month. It is the rate at which the bank balance actually falls.
Runway is cash on hand divided by net burn. A company with a given amount of cash and net burn that takes one twelfth of that cash each month has twelve months of runway.
That simple figure is where most founders stop, and it is usually wrong in the optimistic direction.
Use cash, not accruals. Revenue booked but not collected does not pay salaries. Annual contracts paid up front inflate one month and not the next.
Average over several months. A single month can be distorted by an annual payment, a one-off purchase, or a large customer paying late.
Model forward, not backward. Last month's burn is not next quarter's. Add committed hires at their start dates, known price increases, planned marketing spend, and expected revenue growth or churn. Runway calculated on a forward plan is the number worth using.
Scenarios, not a single number
Build at least three: plan, a downside with slower revenue and costs as committed, and a cut scenario showing how long the company could last with reduced spending. The downside and cut cases tell you how much room you actually have to make decisions.
Include the cash you cannot use
Deposits held as collateral, restricted cash, and balances committed to specific purposes should be excluded from the cash figure. Runway should reflect money the company can actually spend on operations.
What shortens runway without warning
Hiring ahead of the plan. Each hire adds salary plus benefits, payroll taxes, equipment, and tools, and the full cost lands immediately while the value takes months.
Revenue that lags forecast. Sales cycles often run longer than planned, especially for enterprise customers.
Customer concentration. Losing one large customer can change net burn materially overnight.
Usage-based costs. Cloud and AI inference costs that scale with usage can grow faster than revenue if pricing does not track them.
Collections. Customers paying late move cash out of the month it was needed.
Deferred obligations. Taxes, annual software renewals, and vendor commitments that arrive in a lump.
Currency and banking exposure. Holding cash in a single institution or currency can create risk that the runway figure does not show.
Runway in hardware and deep tech
Companies with long development cycles face lumpier burn: prototype builds, certification, and manufacturing commitments arrive as large one-time costs. Forward models for these companies need to show those spikes explicitly rather than averaging them away.
When to act on it
Fundraising takes longer than it looks. Preparing materials, building a pipeline, taking meetings, negotiating terms, and closing legal documents commonly take several months, and longer in difficult markets. A company that starts raising with little runway left negotiates from weakness.
Set a decision point. Decide in advance at what remaining runway you will start a raise, and at what point you will cut costs if a raise is not progressing. Making those decisions before they are urgent is most of the value of tracking runway.
Default alive or default dead. Paul Graham's framing asks whether, on current expenses and revenue growth, the company reaches profitability before cash runs out. A default alive company can raise by choice. A default dead company must raise or change course, and should know that early.
Extending runway. The main levers are slowing hiring, cutting discretionary spend, renegotiating large contracts, improving collections, raising prices, and moving toward profitability. Bridge financing from existing investors is another option, usually on terms that reflect the company's position.
Communicate it. Investors and the board should see runway and burn regularly. Surprises about cash damage trust more than bad news reported early.
Runway after a raise
A new round resets cash, not discipline. Plan spending so the next round's milestones can be reached with a buffer, rather than sizing burn to spend the whole raise before the next fundraise could realistically close.
Frequently asked questions
- What is runway in a startup?
- The number of months a startup can keep operating before its cash runs out at the current rate of spending. It is calculated as cash on hand divided by monthly net burn, where net burn is total spending minus revenue actually collected in the month.
- What is the difference between gross burn and net burn?
- Gross burn is all cash going out each month. Net burn subtracts the cash collected from customers in that month, so it measures how quickly the bank balance actually falls. Runway uses net burn, while gross burn shows the cost base.
- How much runway should a startup have?
- Enough to reach the milestones needed for the next raise or profitability with a buffer, plus the several months a fundraise commonly takes. Companies that begin raising with little runway left negotiate from a weak position, so set a decision point well in advance.
- What does default alive mean?
- A framing from Paul Graham: a startup is default alive if, on its current expenses and revenue growth, it reaches profitability before running out of cash. If not, it is default dead and must raise money or change course, which founders should recognise early.