Running out of money kills more startups than anything else. Your runway—the time until your cash hits zero—is the most important number to track after product-market fit.

What is Runway?

Runway is how many months your startup can survive at current spending levels.

Runway (months) = Cash Balance / Monthly Burn Rate

If you have $1.2 million in the bank and spend $100,000 per month, you have 12 months of runway.

Understanding Burn Rate

Burn rate is how much cash you spend each month beyond what you bring in.

Gross Burn vs Net Burn

Gross Burn: Total monthly expenses

Example: $150,000/month in payroll, rent, services

Net Burn: Expenses minus revenue

Example: $150,000 expenses - $30,000 revenue = $120,000 net burn

Net burn is what matters for runway calculations. It's the actual cash leaving your account.

Calculating Net Burn

Net Burn = Total Operating Expenses - Total Revenue

Include everything:

• Salaries and benefits
• Rent and utilities
• Software and services
• Marketing and sales
• Legal and accounting
• Travel and meals
• Contractors and consultants

Exclude:

• One-time purchases (sometimes)
• Fundraising proceeds
• Loans

Runway Calculation Examples

Early-Stage (Pre-Revenue)

• Cash: $500,000
• Monthly expenses: $50,000
• Revenue: $0
• Net burn: $50,000
• Runway: 10 months

Growth-Stage (With Revenue)

• Cash: $3,000,000
• Monthly expenses: $400,000
• Monthly revenue: $150,000
• Net burn: $250,000
• Runway: 12 months

Approaching Profitability

• Cash: $2,000,000
• Monthly expenses: $500,000
• Monthly revenue: $450,000
• Net burn: $50,000
• Runway: 40 months

How Much Runway Do You Need?

By Stage:

Why 18-24 Months?

Fundraising takes 3-6 months (or more). You need:

• 6 months to show progress to new investors
• 6 months to run the fundraising process
• 6 months buffer for delays

Starting with 12 months of runway means you're fundraising from day one—from a position of weakness.

The Runway-Fundraising Timeline

Here's a typical pattern:

Month 1-6: Execute on plan, hit milestones

Month 7-12: See results, refine story, prep materials

Month 13-15: Start investor conversations

Month 16-20: Active fundraising

Month 21-24: Close round, money in bank

If you start with 18 months, you're raising around month 8-10 with solid progress to show. Start with 12 months, and you're raising at month 2-3 with nothing new to demonstrate.

Warning Signs: When Runway Gets Dangerous

Red Zone: Under 6 Months

You're in crisis mode. Options narrow dramatically:

• Desperate fundraising (bad terms)
• Emergency cost cuts (may damage company)
• Bridge loans (expensive, dilutive)
• Acqui-hire discussions

Yellow Zone: 6-12 Months

Fundraising should be your top priority. Every week matters.

Green Zone: 12+ Months

You have time to execute, show progress, and raise from a position of strength.

How to Extend Runway

1. Cut Burn Rate

The most direct lever. Common cuts:

• Reduce headcount (largest expense for most startups)
• Renegotiate contracts and subscriptions
• Switch to cheaper tools
• Cut marketing spend
• Reduce office costs (go remote)
• Defer founder salaries

A 30% burn reduction extends 12-month runway to 17 months.

2. Increase Revenue

Even small revenue extends runway and improves fundraising position.

$20K/month in revenue on $100K burn = $80K net burn

Runway improves by 25%.

3. Bridge Financing

Short-term capital from existing investors to extend runway until the next round. Common structures:

• Convertible note
• SAFE
• Extension of previous round terms

Bridge works when investors believe in the company but need more time/data.

4. Revenue-Based Financing / Venture Debt

Non-dilutive capital for companies with revenue:

• Venture debt: Typically 20-30% of last equity round
• Revenue-based financing: Repaid as percentage of revenue

Best when you're close to profitability or need to bridge to a milestone.

5. Grants and Non-Dilutive Funding

• Government grants (SBIR, STTR)
• Foundation grants
• Pitch competitions
• Accelerator programs

Free money, but often slow and competitive.

Burn Rate Benchmarks

What's "Normal"?

These vary widely by industry, location, and strategy.

Efficient vs Inefficient Burn

Burn efficiency = Net New ARR / Net Burn

Good: $1+ ARR per $1 burned

Okay: $0.50-$1 ARR per $1 burned

Concerning: Under $0.50 ARR per $1 burned

High burn is fine if it's generating proportional growth. High burn with stagnant metrics is a death spiral.

Communicating Runway to Investors

What VCs Want to See:

1. Clear understanding of your numbers

2. Realistic projections (not hockey sticks)

3. Milestone-based planning: "This runway gets us to X"

4. Contingency plans: "If needed, we can cut to extend"

5. Capital efficiency: Evidence of thoughtful spending

What Raises Red Flags:

• Vague answers about burn or runway
• Unrealistic revenue projections extending runway
• No plan B if fundraising takes longer
• Spending without clear ROI

Scenario Planning

Build three scenarios:

Base Case

Current trajectory continues:

• Revenue grows X%/month
• Expenses stay flat
• Runway = Y months

Downside Case

Things go wrong:

• Revenue growth slows
• Key hire costs more
• Runway = Y-3 months

Upside Case

Things go well:

• Revenue accelerates
• Big customer closes
• Runway = Y+6 months

Plan for base case, prepare for downside, hope for upside.

Key Takeaways

• Runway = Cash / Monthly Net Burn
• Target 18-24 months runway after each raise
• Start fundraising with 9+ months remaining
• Under 6 months runway = crisis mode
• Burn rate cuts are the fastest way to extend runway
• Communicate runway clearly to investors—vagueness is a red flag
• Build scenarios: base, downside, and upside cases

Your runway is your company's heartbeat. Monitor it weekly, plan around it quarterly, and never let it surprise you. Running out of money is preventable—but only if you're paying attention.