Cash Runway

The number of months a company can operate before running out of cash, calculated as cash divided by monthly net burn.

Example

1,800,000 in cash with a net burn of 150,000 a month gives 12 months of runway.

Important

Fundraising takes months, so the real deadline to start raising is well before runway ends.

Related terms

  • Net Burn Rate — The amount by which a company's cash falls each month, equal to cash spent minus cash received.
  • Default Alive — Describes a company that, on its current trajectory of revenue and costs, would reach profitability before running out of cash without raising more money.

Lessons that explain it

  • If one customer can leave, measure what leaves with them — Customer concentration shows how much revenue depends on a few customers. Measure the share of the largest customers and what happens to the business if one leaves. (9 min)
  • Runway is cash in the bank divided by what really leaves each month — Diligence recalculates burn and runway from bank statements rather than from management's summary, separating gross burn from net burn and cash held from cash promised. (10 min)
  • The real cost of running the company is often higher than the books show — Early companies often have below-market founder pay, unpaid invoices, deferred costs and free resources. Normalising the expense base shows what the company will actually cost to run. (10 min)
  • A projection is tested against the company's own history — Financial projections are most useful when compared with what the company has actually achieved and run through downside scenarios that show when cash would run out. (11 min)
  • Ask what the bridge is a bridge to — A bridge round is short-term funding to reach a milestone or a larger round. Whether it is a sign of strength or of trouble depends on what specifically it is meant to reach, and whether anyone new is willing to fund it. (11 min)
  • A board seat can carry personal legal risk, especially when a company approaches insolvency — Directors can face personal liability for certain failures, and the risks often rise when a company is close to running out of money. Directors' and officers' insurance and indemnities reduce but do not remove that exposure. (11 min)

All 578 terms in the Investing glossary