Runway
Efficiency
Liquidity
Industry:
Sector Agnostic
Aliases:
Short Definition
Runway measures the amount of time, typically in months, that a company can continue to operate before it exhausts its cash reserves. It is a critical indicator of a company's financial health, particularly for startups and early-stage businesses that are not yet profitable and rely on investor capital. The calculation is based on the company's current cash balance and its burn rate—the net rate at which it is spending money.
Short Definition
Runway measures the amount of time, typically in months, that a company can continue to operate before it exhausts its cash reserves. It is a critical indicator of a company's financial health, particularly for startups and early-stage businesses that are not yet profitable and rely on investor capital. The calculation is based on the company's current cash balance and its burn rate—the net rate at which it is spending money.
Short Definition
Runway measures the amount of time, typically in months, that a company can continue to operate before it exhausts its cash reserves. It is a critical indicator of a company's financial health, particularly for startups and early-stage businesses that are not yet profitable and rely on investor capital. The calculation is based on the company's current cash balance and its burn rate—the net rate at which it is spending money.
Why it matters for Investors
Indicator of Financial Health and Risk: Runway directly measures survival time with current cash. A short runway signals immediate financial pressure and insolvency risk, often forcing emergency fundraising or drastic cost cuts
Leverage in Negotiations and Valuation: Longer runway provides time to achieve milestones (e.g., product-market fit, revenue growth), justifying higher valuations. 18-24 months of runway strengthens negotiating power; less than 12 months often leads to valuation discounts
Gauge of Operational Discipline: Investors assess runway to evaluate management's financial planning and management ability. A well-managed runway demonstrates strategic spending and growth decisions, building investor confidence
Timing for Future Fundraising: Runway dictates the next funding round's timeline. Investors seek a realistic plan and sufficient time to execute strategy before needing more capital
Why it matters for Investors
Indicator of Financial Health and Risk: Runway directly measures survival time with current cash. A short runway signals immediate financial pressure and insolvency risk, often forcing emergency fundraising or drastic cost cuts
Leverage in Negotiations and Valuation: Longer runway provides time to achieve milestones (e.g., product-market fit, revenue growth), justifying higher valuations. 18-24 months of runway strengthens negotiating power; less than 12 months often leads to valuation discounts
Gauge of Operational Discipline: Investors assess runway to evaluate management's financial planning and management ability. A well-managed runway demonstrates strategic spending and growth decisions, building investor confidence
Timing for Future Fundraising: Runway dictates the next funding round's timeline. Investors seek a realistic plan and sufficient time to execute strategy before needing more capital
Why it matters for Investors
Indicator of Financial Health and Risk: Runway directly measures survival time with current cash. A short runway signals immediate financial pressure and insolvency risk, often forcing emergency fundraising or drastic cost cuts
Leverage in Negotiations and Valuation: Longer runway provides time to achieve milestones (e.g., product-market fit, revenue growth), justifying higher valuations. 18-24 months of runway strengthens negotiating power; less than 12 months often leads to valuation discounts
Gauge of Operational Discipline: Investors assess runway to evaluate management's financial planning and management ability. A well-managed runway demonstrates strategic spending and growth decisions, building investor confidence
Timing for Future Fundraising: Runway dictates the next funding round's timeline. Investors seek a realistic plan and sufficient time to execute strategy before needing more capital
Formula
Practical considerations:
Use Net Burn, Not Gross Burn: Net Burn (monthly) = Cash outflows (from Operating Activities & Investing Activities) − Cash inflows (from Operating Activities). Gross Burn (monthly) = Cash outflows (Operating Activities + Investing Activities) only. Gross burn ignores collections, so it understates runway. Exclude financing flows.
Average the Burn Rate: A single month's burn can be volatile. It is best practice to use an average net burn rate calculated over a period of at least three months to smooth out fluctuations and get a more accurate forecast Runway (months) = Cash balance ÷ Net Burn (when Net Burn > 0). If Net Burn ≤ 0, you’re cash-generating → runway is N/A.
Forward-Looking Projections: While historical averages are useful, the most accurate runway calculation uses a projected future burn rate that accounts for planned changes like new hires, marketing campaigns, or other major investments
Cash is King: The "Total Cash Balance" should only include actual cash and cash equivalents in the bank. It is not about bookings or accounts receivable, but about the cash available to pay expenses
Formula
Practical considerations:
Use Net Burn, Not Gross Burn: Net Burn (monthly) = Cash outflows (from Operating Activities & Investing Activities) − Cash inflows (from Operating Activities). Gross Burn (monthly) = Cash outflows (Operating Activities + Investing Activities) only. Gross burn ignores collections, so it understates runway. Exclude financing flows.
Average the Burn Rate: A single month's burn can be volatile. It is best practice to use an average net burn rate calculated over a period of at least three months to smooth out fluctuations and get a more accurate forecast Runway (months) = Cash balance ÷ Net Burn (when Net Burn > 0). If Net Burn ≤ 0, you’re cash-generating → runway is N/A.
Forward-Looking Projections: While historical averages are useful, the most accurate runway calculation uses a projected future burn rate that accounts for planned changes like new hires, marketing campaigns, or other major investments
Cash is King: The "Total Cash Balance" should only include actual cash and cash equivalents in the bank. It is not about bookings or accounts receivable, but about the cash available to pay expenses
Formula
Practical considerations:
Use Net Burn, Not Gross Burn: Net Burn (monthly) = Cash outflows (from Operating Activities & Investing Activities) − Cash inflows (from Operating Activities). Gross Burn (monthly) = Cash outflows (Operating Activities + Investing Activities) only. Gross burn ignores collections, so it understates runway. Exclude financing flows.
Average the Burn Rate: A single month's burn can be volatile. It is best practice to use an average net burn rate calculated over a period of at least three months to smooth out fluctuations and get a more accurate forecast Runway (months) = Cash balance ÷ Net Burn (when Net Burn > 0). If Net Burn ≤ 0, you’re cash-generating → runway is N/A.
Forward-Looking Projections: While historical averages are useful, the most accurate runway calculation uses a projected future burn rate that accounts for planned changes like new hires, marketing campaigns, or other major investments
Cash is King: The "Total Cash Balance" should only include actual cash and cash equivalents in the bank. It is not about bookings or accounts receivable, but about the cash available to pay expenses
Worked Example
Name | Cash Inflow (Revenue) | Cash Outflow (Expenses) | Net Burn | Notes |
|---|---|---|---|---|
Future Hire | Not Applicable | Not Applicable | Not Applicable | A planned hire in January is not included in this period's burn. |
December | $100,000 | $220,000 | $120,000 | Seasonal hiring and bonuses. |
November | $90,000 | $200,000 | $110,000 | Increased marketing spend. |
October | $80,000 | $180,000 | $100,000 | Standard operating month. |
Runway calculation:
Total Net Burn (Q4): $100,000 + $110,000 + $120,000 = $330,000
Average Monthly Net Burn: $330,000 / 3 months = $110,000 per month
Starting Cash Balance: $1,200,000
Runway: $1,200,000 / $110,000 = 10.9 months
Notes:
The calculation uses the average net burn from the past three months to provide a stable forecast
Runway of 10.9 months means the startup can operate for about 10.9 months before needing more cash—without any changes in spending or revenue.
Extending runway can be achieved by increasing cash through fundraising, lowering expenses, or growing revenue to reduce burn.
Worked Example
Name | Cash Inflow (Revenue) | Cash Outflow (Expenses) | Net Burn | Notes |
|---|---|---|---|---|
Future Hire | Not Applicable | Not Applicable | Not Applicable | A planned hire in January is not included in this period's burn. |
December | $100,000 | $220,000 | $120,000 | Seasonal hiring and bonuses. |
November | $90,000 | $200,000 | $110,000 | Increased marketing spend. |
October | $80,000 | $180,000 | $100,000 | Standard operating month. |
Runway calculation:
Total Net Burn (Q4): $100,000 + $110,000 + $120,000 = $330,000
Average Monthly Net Burn: $330,000 / 3 months = $110,000 per month
Starting Cash Balance: $1,200,000
Runway: $1,200,000 / $110,000 = 10.9 months
Notes:
The calculation uses the average net burn from the past three months to provide a stable forecast
Runway of 10.9 months means the startup can operate for about 10.9 months before needing more cash—without any changes in spending or revenue.
Extending runway can be achieved by increasing cash through fundraising, lowering expenses, or growing revenue to reduce burn.
Worked Example
Name | Cash Inflow (Revenue) | Cash Outflow (Expenses) | Net Burn | Notes |
|---|---|---|---|---|
Future Hire | Not Applicable | Not Applicable | Not Applicable | A planned hire in January is not included in this period's burn. |
December | $100,000 | $220,000 | $120,000 | Seasonal hiring and bonuses. |
November | $90,000 | $200,000 | $110,000 | Increased marketing spend. |
October | $80,000 | $180,000 | $100,000 | Standard operating month. |
Runway calculation:
Total Net Burn (Q4): $100,000 + $110,000 + $120,000 = $330,000
Average Monthly Net Burn: $330,000 / 3 months = $110,000 per month
Starting Cash Balance: $1,200,000
Runway: $1,200,000 / $110,000 = 10.9 months
Notes:
The calculation uses the average net burn from the past three months to provide a stable forecast
Runway of 10.9 months means the startup can operate for about 10.9 months before needing more cash—without any changes in spending or revenue.
Extending runway can be achieved by increasing cash through fundraising, lowering expenses, or growing revenue to reduce burn.
Best Practices
Reduce Operating Costs: Scrutinize all expenses and cut non-essential spending. This can include renegotiating vendor contracts, optimizing marketing spend for channels with the highest Return on Investment, and embracing remote work to save on office costs
Increase Revenue and Accelerate Cash Flow: Focus on strategies that generate revenue, such as upselling and cross-selling to existing customers. Improve cash flow by streamlining invoicing to accelerate customer payments and negotiating longer payment terms with suppliers
Strategic Financial Planning: Maintain a detailed financial model and create contingency plans for different scenarios, such as a market downturn or a delayed funding round. Avoid overhiring, as payroll is often the largest expense
Proactive Fundraising: Do not wait until the runway is critically short. Start the fundraising process with at least 12 months of runway, as it provides a stronger negotiating position and a buffer for unexpected delays
Best Practices
Reduce Operating Costs: Scrutinize all expenses and cut non-essential spending. This can include renegotiating vendor contracts, optimizing marketing spend for channels with the highest Return on Investment, and embracing remote work to save on office costs
Increase Revenue and Accelerate Cash Flow: Focus on strategies that generate revenue, such as upselling and cross-selling to existing customers. Improve cash flow by streamlining invoicing to accelerate customer payments and negotiating longer payment terms with suppliers
Strategic Financial Planning: Maintain a detailed financial model and create contingency plans for different scenarios, such as a market downturn or a delayed funding round. Avoid overhiring, as payroll is often the largest expense
Proactive Fundraising: Do not wait until the runway is critically short. Start the fundraising process with at least 12 months of runway, as it provides a stronger negotiating position and a buffer for unexpected delays
Best Practices
Reduce Operating Costs: Scrutinize all expenses and cut non-essential spending. This can include renegotiating vendor contracts, optimizing marketing spend for channels with the highest Return on Investment, and embracing remote work to save on office costs
Increase Revenue and Accelerate Cash Flow: Focus on strategies that generate revenue, such as upselling and cross-selling to existing customers. Improve cash flow by streamlining invoicing to accelerate customer payments and negotiating longer payment terms with suppliers
Strategic Financial Planning: Maintain a detailed financial model and create contingency plans for different scenarios, such as a market downturn or a delayed funding round. Avoid overhiring, as payroll is often the largest expense
Proactive Fundraising: Do not wait until the runway is critically short. Start the fundraising process with at least 12 months of runway, as it provides a stronger negotiating position and a buffer for unexpected delays
FAQs
How is runway different from burn rate?
Burn rate = speed of cash use (e.g., $50,000/month). Runway = time left (e.g., 10 months).How often should runway be calculated?
At least monthly. Faster if burn is high or volatile.Can a long runway be a bad thing?
Yes. 30+ months may signal under-investment in growth. A company can have a long runway due to a large cash infusion from investors but still be highly unprofitable. Runway measures cash survival time, not whether the business model is profitableWhat are common mistakes in managing runway?
Underestimating expenses, overestimating revenue, and ignoring the 6–9 months usually needed to raise a round.Do profitable or late-stage companies have “runway”?
If Net Burn ≤ 0 (cash-generating), “runway” is not applicable. Track liquidity coverage (cash ÷ gross monthly outflows), stress-case runway (cash ÷ projected downside net burn), and debt maturities instead.
FAQs
How is runway different from burn rate?
Burn rate = speed of cash use (e.g., $50,000/month). Runway = time left (e.g., 10 months).How often should runway be calculated?
At least monthly. Faster if burn is high or volatile.Can a long runway be a bad thing?
Yes. 30+ months may signal under-investment in growth. A company can have a long runway due to a large cash infusion from investors but still be highly unprofitable. Runway measures cash survival time, not whether the business model is profitableWhat are common mistakes in managing runway?
Underestimating expenses, overestimating revenue, and ignoring the 6–9 months usually needed to raise a round.Do profitable or late-stage companies have “runway”?
If Net Burn ≤ 0 (cash-generating), “runway” is not applicable. Track liquidity coverage (cash ÷ gross monthly outflows), stress-case runway (cash ÷ projected downside net burn), and debt maturities instead.
FAQs
How is runway different from burn rate?
Burn rate = speed of cash use (e.g., $50,000/month). Runway = time left (e.g., 10 months).How often should runway be calculated?
At least monthly. Faster if burn is high or volatile.Can a long runway be a bad thing?
Yes. 30+ months may signal under-investment in growth. A company can have a long runway due to a large cash infusion from investors but still be highly unprofitable. Runway measures cash survival time, not whether the business model is profitableWhat are common mistakes in managing runway?
Underestimating expenses, overestimating revenue, and ignoring the 6–9 months usually needed to raise a round.Do profitable or late-stage companies have “runway”?
If Net Burn ≤ 0 (cash-generating), “runway” is not applicable. Track liquidity coverage (cash ÷ gross monthly outflows), stress-case runway (cash ÷ projected downside net burn), and debt maturities instead.
Related Metrics
Commonly mistaken for:
CAC Payback Period (Months to recover customer acquisition cost from gross profit. It’s an efficiency metric, not cash survival. You can have fast payback and still a short runway if net burn is high)
Net Burn (Monthly net cash outflow (outflows − operating inflows). It’s the input to runway (Runway = Cash ÷ Net Burn), not a time measure)
Related Metrics
Commonly mistaken for:
CAC Payback Period (Months to recover customer acquisition cost from gross profit. It’s an efficiency metric, not cash survival. You can have fast payback and still a short runway if net burn is high)
Net Burn (Monthly net cash outflow (outflows − operating inflows). It’s the input to runway (Runway = Cash ÷ Net Burn), not a time measure)
Related Metrics
Commonly mistaken for:
CAC Payback Period (Months to recover customer acquisition cost from gross profit. It’s an efficiency metric, not cash survival. You can have fast payback and still a short runway if net burn is high)
Net Burn (Monthly net cash outflow (outflows − operating inflows). It’s the input to runway (Runway = Cash ÷ Net Burn), not a time measure)
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