Runway
Definition
Runway is the number of months a startup can continue operating before its cash runs out, calculated by dividing current cash reserves by the monthly net burn rate. It is the most critical financial planning metric for early-stage companies and directly determines fundraising timelines.
Formula
Overview
Runway answers the most urgent question every startup founder faces: how long do we have? It translates the abstract concept of burn rate into a concrete timeline measured in months. When runway drops below six months, fundraising becomes urgent and founders lose negotiating leverage.
The standard formula divides current cash by net monthly burn, but savvy founders model runway dynamically. Revenue growth reduces net burn over time, extending runway beyond the static calculation. Conversely, planned hiring or marketing pushes increase burn and shorten it. Building a rolling runway forecast that accounts for planned changes is far more useful than a single-point estimate.
Most investors and advisors recommend maintaining 12 to 18 months of runway at all times for venture-backed startups. Bootstrapped companies may operate with shorter runways if they are near profitability, but should still maintain a cash buffer for unexpected downturns or delayed customer payments.
Example
With $600K in the bank and a net burn of $50K/month, the startup has 12 months of runway.
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