Burn Rate & Runway

Burn rate is how fast your startup spends cash. Runway is how long you can operate before running out. Both are existential metrics.

Burn Rate

Burn rate is the rate at which your startup spends its cash reserves in excess of revenue. It's expressed as a monthly figure.

Gross Burn Rate: Total monthly operating expenses (before revenue) Net Burn Rate: Total monthly operating expenses minus revenue

Example: You spend $80,000/month and earn $20,000 in revenue. Your gross burn is $80K; your net burn is $60K.

Investors almost always refer to net burn rate when assessing runway.

Runway

Runway is the amount of time (in months) you have before your cash is exhausted at the current net burn rate.

Formula: Runway = Cash in Bank ÷ Net Monthly Burn Rate

Example: $600,000 in the bank with $60,000 net burn = 10 months of runway.

Why These Metrics Are Existential

A startup that runs out of cash before reaching profitability or the next fundraise is dead. Burn rate and runway determine when you must raise, how urgently you need to grow revenue, and what decisions you can afford to delay.

Rule of thumb: Start fundraising when you have at least 6 months of runway. Fundraising typically takes 3–6 months, and you want a buffer.

Extending Runway

Runway can be extended by: - Reducing costs (hiring freezes, renegotiating contracts) - Increasing revenue (faster sales, price increases, upsells) - Raising additional capital (bridge round, convertible note) - Delaying planned expenditures

Default Alive vs. Default Dead

Paul Graham of Y Combinator coined this test: given your current burn rate and revenue growth, will you reach profitability before you run out of money — without any further fundraising?

"Default alive" is the goal. "Default dead" means you must either cut burn, grow faster, or raise capital — or all three.