Runway
The number of months a company can operate at its current burn rate before exhausting its cash reserves.
Runway is the amount of time — typically expressed in months — that a company can continue operating before running out of cash, calculated by dividing current cash reserves by the monthly net burn rate. It is one of the most important metrics for any company that is not yet cash-flow positive.
Runway = Cash on Hand ÷ Monthly Net Burn Rate
For example, a startup with $12M in the bank and a $600K monthly net burn rate has 20 months of runway. This metric drives virtually every major strategic decision: when to raise the next round, whether to accelerate hiring, when to cut costs, and how aggressively to pursue growth.
The prevailing wisdom in venture capital is that a company should raise a new round while it still has 12–18 months of runway remaining. This gives adequate time to complete a fundraising process — typically 3–6 months — while still having leverage. Companies that wait until they have 6 months or less of runway often face desperate fundraising conditions, leading to harsh terms or failed raises.
Runway projections must account for the dynamic nature of both burn and revenue. A company might be burning $500K/month today but plan to hire 10 engineers next quarter, increasing burn to $800K. Scenario planning — modeling best case, base case, and downside revenue and expense trajectories — is essential for accurate runway forecasting.
In downturns, 'extending runway' becomes a primary objective, achieved through cost reduction, revenue acceleration, bridge financing, or venture debt. The 2022 tech downturn saw thousands of startups scrambling to extend runway by 12–18 months through significant headcount and expense reductions.
FAQs
How do you calculate runway accurately?
Use net burn rate (expenses minus revenue) not gross burn. Factor in upcoming large payments or cash events. Build a 12–18 month cash flow model with multiple scenarios rather than relying on a simple division. Include any committed but undeployed investment capital as available cash.
What happens when runway runs out?
When cash is exhausted without new funding, a company must cease operations, pursue an emergency sale, or file for bankruptcy. This is why runway management is existential for startups. Companies with less than 3 months of runway and no clear path to new capital typically have very limited options.
Does venture debt extend runway?
Yes. Venture debt is a common tool for extending runway by 3–6 months without diluting existing equity. However, it comes with interest costs and often warrants, and repayment obligations add to burn. It works best for companies with clear revenue visibility who need a bridge to a milestone rather than a lifeline.
Related Terms
Burn Rate
The rate at which a company spends its cash reserves each month, critical for tracking how long funding will last.
Working Capital
The difference between current assets and current liabilities, measuring a company's short-term liquidity and operational efficiency.
Annual Recurring Revenue
The annualized value of all active recurring subscription contracts, the primary revenue metric for SaaS businesses.
Cash Flow Statement
A financial statement showing all cash inflows and outflows across operating, investing, and financing activities over a period.
