Runway is the number of months a company can operate before running out of cash. Most investors want to see 18+ months of runway post-financing. Founders should start fundraising when they have 6–9 months of runway remaining.
Key Definitions
Gross burn rate: Total cash spent per month
Net burn rate: Cash spent minus cash received (gross burn - revenue)
Runway: Current cash balance ÷ Net monthly burn rate = Months of runway
Runway Calculation Example
- Cash balance: $1,200,000
- Monthly gross burn: $200,000
- Monthly revenue: $50,000
- Net burn: $150,000
- Runway: $1,200,000 ÷ $150,000 = 8 months
When to Start Fundraising
Start when you have 6–9 months of runway remaining. Fundraising takes 3–6 months.
Never fundraise from desperation. It weakens your negotiating position.
How to Extend Runway
Revenue Acceleration: Annual prepayment discounts (10–20%), accelerate sales cycles, expand existing accounts
Cost Reduction: Defer non-essential hires, renegotiate vendor contracts, reduce cloud infrastructure costs
Non-Dilutive Capital: Revenue-based financing (Clearco, Capchase), government grants, R&D tax credits, SBIR/STTR (US), CONACYT (Mexico)
The Default Alive Concept (Paul Graham)
At your current growth rate and burn rate, will you reach cash flow breakeven before your runway ends?
If yes: "Default alive". Position of strength
If no: "Default dead". Must raise capital or change trajectory
Key Takeaways
- Runway = Cash balance ÷ Net monthly burn rate.
- Start fundraising with 6–9 months of runway remaining.
- Annual prepayment discounts are the fastest way to extend runway.
- "Default alive" means you reach profitability before running out of cash without new capital.
- Never fundraise from desperation. It weakens your negotiating position.
Filed under M&A, Partnering & Due Diligence. Working session: Calendly.
Related Articles
Series A Traction Metrics: What Investors Actually Want to See
The specific metrics and milestones that Series A investors evaluate. MRR thresholds, growth rates, retention benchmarks, and market signals by vertical.
The Investor Pitch Deck: Structure, Content, and Common Mistakes
How to structure a pitch deck that gets meetings. The 12 essential slides, what investors scan first, and the mistakes that get decks rejected.
How to Build a Financial Model for Your Startup
A step-by-step guide to building a startup financial model that investors take seriously. Revenue projections, unit economics, and scenario planning.
Startup Valuation Methods: How Investors Value Early-Stage Companies
An overview of the most common startup valuation methods. From comparable analysis to DCF, scorecard, and venture capital method. With examples and when to use each.
Anti-Dilution Provisions: What Founders Need to Know
How anti-dilution provisions work, the difference between full ratchet and weighted average, and how they affect founders in a down round.