Runway is the amount of time a startup can continue operating before running out of money. It's calculated by dividing current cash by monthly burn rate. Runway determines how long founders have to achieve key milestones before needing additional funding.
Understanding and managing runway is critical for startup survival. Running out of cash is the second most common reason startups fail (after lack of market need).
Calculating Runway: Runway (months) = Cash in Bank / Monthly Burn Rate
Example: $500,000 cash ÷ $50,000/month burn = 10 months runway
Types of Burn Rate: - Gross Burn: Total monthly spending - Net Burn: Monthly spending minus revenue - Burn Rate Trend: Whether burn is increasing or decreasing
Healthy Runway Guidelines: - Pre-seed/Seed: 12-18 months runway - Series A+: 18-24 months runway - Start fundraising with 6+ months remaining
Extending Runway: 1. Reduce non-essential spending 2. Renegotiate contracts and leases 3. Increase revenue (even small amounts help) 4. Consider bridge financing 5. Delay hires and major investments
Default Alive vs Default Dead: Paul Graham's framework asks: At current growth and burn, will you reach profitability before running out of money? Default alive companies can survive without additional funding.