What is Runway?
Definition
Runway refers to the amount of time a company can continue operating at its current burn rate before running out of cash. It is typically expressed in months: runway = cash / monthly burn. Startups monitor runway closely to plan fundraising, adjust spending, or reach profitability before cash runs out. Healthy startups aim for 12-18 months of runway to have time for pivots, fundraising, and unexpected challenges. Running out of runway is the most common cause of startup death.
Expert Insights
“Running out of money is not the worst thing that can happen. Running out of time because you ran out of money is.”
“Default alive or default dead? If you are default dead, fundraising or cutting costs must be your top priority, not product features.”
Key Statistics
29% of startups fail because they run out of cash
Source: CB Insights
Fundraising takes an average of 6 months from first pitch to money in bank
Source: DocSend
Startups with 18+ months runway are 2x more likely to raise their next round
Source: First Round Capital
Key Points
- Runway = Cash / Monthly Net Burn Rate
- Expressed in months of operating time remaining
- Aim for 12-18 months minimum after any funding round
- Below 6 months triggers emergency mode
- Extends through revenue growth, cost cuts, or new funding
- Should be recalculated monthly with updated assumptions
- Plan fundraising to complete before runway becomes critical
How to Measure Runway
Runway calculation is simple in concept but requires honest assessment of burn rate and realistic projections.
| Metric | Description | Benchmark |
|---|---|---|
| Current Runway | Cash in bank divided by current monthly net burn. Shows how long you can operate without changes. | 12-18 months minimum; below 6 is critical |
| Projected Runway | Factors in expected revenue growth and planned expense changes. More realistic but requires good forecasting. | Conservative projections are safer than optimistic ones |
| Default Alive vs Dead | If current trends continue, will you reach profitability before running out of cash? A critical yes/no question. | Default alive companies have more options and leverage |
Case Studies
Airbnb
In 2008, Airbnb was nearly out of money with no product-market fit. They had maxed out credit cards and had months of runway left.
They got creative: they created limited-edition cereal boxes (Obama O's and Cap'n McCain's) during the 2008 election and sold them for $40 each. This bought them runway while they figured out the product.
The cereal stunt raised $30,000, enough runway to continue iterating. They were accepted to Y Combinator shortly after. Airbnb is now worth over $80 billion.
Stripe
In their early days, the Collison brothers needed to extend runway while building complex payment infrastructure that would take years to complete.
They raised funding early and maintained significant runway at all times. Patrick Collison emphasized keeping at least 18-24 months of runway to allow focus on the long-term product vision.
Stripe could invest in deep technical work without runway pressure. They are now valued at over $50 billion and process hundreds of billions in payments annually.
Common Mistakes to Avoid
Using optimistic revenue projections in runway calculations
Why it fails: Founders consistently overestimate near-term revenue. Basing runway on optimistic projections leads to shock when reality diverges. You end up with less time than expected.
Instead: Calculate runway using current burn with zero revenue growth. Use this as your baseline. Optimistic scenarios are for motivation; pessimistic ones are for planning.
Starting fundraising too late
Why it fails: Fundraising takes 3-6 months on average, sometimes longer. Starting with only 3 months runway means you have no leverage and may have to accept bad terms or shut down.
Instead: Start fundraising when you have 9-12 months runway. This gives time for a proper process while maintaining leverage. Desperate founders get worse deals.
Not updating runway calculations monthly
Why it fails: Burn rate changes as you hire, revenue grows, and unexpected expenses occur. Stale runway numbers give false confidence or unnecessary panic.
Instead: Update runway calculations monthly. Track how your projections compare to reality. Adjust plans when runway trends in the wrong direction.
What to Do Next
To manage runway effectively, maintain constant awareness and plan proactively.
- Calculate current runway using actual bank balance and recent burn
- Determine if you are default alive or default dead on current trajectory
- Set triggers: at 12 months runway, evaluate options; at 9 months, start fundraising; at 6 months, emergency mode
- Identify levers to extend runway: cost cuts, revenue acceleration, bridge funding
- Update the calculation monthly and share with your team and board
- Never let runway become a surprise crisis
Frequently Asked Questions
Related Terms
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