Runway is the number of months a startup can continue operating before it runs out of cash, assuming current spending and revenue levels remain constant. It is calculated by dividing your current cash balance by your monthly net burn rate. A company with $600,000 in the bank burning $50,000 net per month has 12 months of runway.
How It Works
The formula is straightforward: Runway = Cash Balance / Monthly Net Burn. Net burn accounts for revenue. If you spend $80,000/month but earn $30,000, your net burn is $50,000. Gross burn is total monthly spending regardless of income, useful for worst-case planning.
Runway is not static. It changes with every hiring decision, revenue fluctuation, and unexpected expense. Smart operators model multiple scenarios: base case (current trajectory), optimistic case (expected growth materializes), and pessimistic case (revenue declines 20%).
Why It Matters
Running out of cash is the most common way startups die. Runway determines every strategic decision, including when to fundraise, how aggressively to hire, and whether to invest in growth or optimize costs. Founders who do not know their runway cannot make informed decisions about any of these.
Fundraising typically takes 3-6 months. If you wait until you have 3 months of runway to start raising, you are already in a crisis. Most advisors recommend beginning fundraising with 9-12 months of runway remaining, giving you negotiating leverage and time to find the right investors.
In Practice
A seed-stage startup raises $1.5M and spends $100K/month with $20K in revenue. Their net burn is $80K, giving them approximately 19 months of runway. They plan to reach Series A metrics within 12 months and begin fundraising at month 12, preserving 7 months of buffer. If growth stalls at month 8, they have time to cut spending or pivot before the situation becomes critical.
Pro Tips
Track runway weekly, not quarterly. Small spending increases compound faster than founders expect. The "default alive" calculation asks whether, at current revenue growth and spending, you will become profitable before cash runs out. If not, you depend on future fundraising. Extend runway through revenue (preferred), cost cuts, or bridge financing. Revenue is always the healthiest extension strategy.