Runway - cash divided by net burn - is the single most important monitoring figure for an early company, because running out of money ends every other possibility. Fundraising time makes the real deadline earlier than it looks.
11 min read · Level 5
If I could track only one figure for an early-stage company, it would be runway, and I would subtract fundraising time from it without exception. Almost every other problem can be worked on if there is time. Running out of cash removes the time, and it often arrives in companies whose other metrics looked fine until the month the money ran out.
Runway is how long a company can operate before cash runs out:
Runway in months = cash / monthly net burn Net burn = cash spent - cash received in a month
A company with 1,800,000 in cash and a net burn of 150,000 a month has 12 months of runway.
The real deadline is earlier. Raising a round often takes several months, and investors are less willing to invest in a company that is almost out of money. If fundraising takes about 6 months, this company needs to begin within about 6 months - and ideally sooner, to avoid negotiating from weakness.
Runway 12 months Typical fundraise about 6 months Must start fundraising within about 6 months
Burn changes too. If the company hires and burn rises to 200,000 a month, the same 1,800,000 lasts 9 months, and the fundraising start date moves to about 3 months away.
A company is often described as default alive if, on its current trajectory of revenue growth and costs, it would reach profitability before cash runs out without raising more money. Otherwise it is default dead: it must raise money, cut costs or grow faster to survive.
Because growth, product and strategy only matter if the company survives long enough to benefit from them. A promising company that runs out of cash fails as completely as a poor one.
Runway also sets the balance of power in the next round. A company with 18 months of runway can negotiate; one with three months usually takes whatever terms are available, which often means a down round and heavy dilution.
Educational, not personalised financial advice. Nothing in the Investor Academy is a recommendation to buy, sell or hold anything — what is right for you depends on your own circumstances and the rules where you live.
Tracking runway over three quarters.
Quarter Cash Net burn/month Runway Q1 2,400,000 150,000 16 months Q2 1,800,000 200,000 9 months Q3 1,200,000 200,000 6 months
Revenue grew each quarter and the update was upbeat. But runway fell from 16 months to 6 in six months, because burn rose faster than revenue. At 6 months, with fundraising taking around 6 months, the company is already at the latest safe point to start. An investor who noticed in Q2 could have asked about the plan to extend runway while options were wider.
Focusing on revenue growth or product progress while runway shortens toward the point where fundraising must already be underway.
Divide cash by monthly net burn, and record it in your tracker.
Assume raising takes several months and compute when the company must start.
Check whether burn is rising faster than revenue.
When runway falls below about 12 months, ask whether the company plans to raise, cut costs or reach profitability, and when.
For every early-stage company in your portfolio, every update.
Do not apply the same urgency to a profitable company or one with a clear path to profitability before cash runs out.
Analyses of startup post-mortems compiled by research firms such as CB Insights have repeatedly listed running out of cash or failing to raise new capital among the most common reasons cited for startup failure.
Monitor runway as the survival metric it is, and ask about the plan well before it becomes urgent.
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