Cash runway is the amount of time, typically measured in months, that a company can continue to operate before it runs out of money. It is effectively a countdown clock for your business. When the clock hits zero, the business is insolvent.
For a startup founder, knowing this number is not optional. It is the primary constraint on every decision you make. It determines whether you can hire a new engineer, whether you need to cut marketing spend, and most importantly, when you need to start raising your next round of funding.
The definition provided here assumes no new income. This is a conservative view, often called a “zero revenue” runway. It asks a terrifying but necessary question. If sales stopped today, how long could we keep the lights on?
The Math Behind the Clock
#Calculating runway requires two numbers: your current cash balance and your burn rate.
The formula is simple division. You take your total cash in the bank and divide it by your monthly burn rate. If you have five hundred thousand dollars in the bank and you spend fifty thousand dollars a month, you have ten months of runway.
However, there is a nuance in the burn rate used.
- Gross Burn Runway: This aligns with the “no new income” definition. It uses your total monthly expenses. This is your worst-case scenario safety net.
- Net Burn Runway: This is what most operating founders use day-to-day. It takes expenses minus revenues. If you spend fifty thousand but make twenty thousand, your net burn is thirty thousand. This extends your runway significantly.
Founders should calculate both. The Net Burn number tells you how long you can last on your current trajectory. The Gross Burn number tells you how resilient you are to a market crash.
The Fundraising Danger Zone
#Runway dictates the timing of fundraising. A common mistake is waiting until you have three months of cash left to start looking for investors. This is often fatal.
Fundraising takes time. It involves finding leads, pitching, due diligence, and closing. This process rarely takes less than six months. If you start with three months of runway, you are negotiating from a position of desperation. Investors can smell this. They know you will take any deal to survive, or they will simply pass because the risk of you going bankrupt during the process is too high.
A healthy rule of thumb is to start raising when you still have nine to twelve months of runway left. This allows you to focus on the business while fundraising, rather than panicking about payroll.
Managing the Timeline
#Runway is not a static number. It changes every time you make a financial decision. Hiring a senior developer might shorten your runway by a month. Landing a large contract might extend it by three.
This leads to the concept of “Default Alive” versus “Default Dead.”
If your runway extends past the point where you will become profitable based on your current growth, you are Default Alive. You do not need investors to survive. If your runway ends before you reach profitability, you are Default Dead. You are dependent on external capital to exist.
Founders must constantly ask if their spending is bringing them closer to profitability or just burning time. If you have eighteen months of runway, you have time to experiment. If you have six months, you only have time to execute.