Runway

Runway is calculated by dividing the cash a company has available by its net burn rate, the amount of cash it loses each month.

For example, a start-up with 3 million in the bank and a net burn of 250,000 a month has a runway of 12 months. Unless it raises more money, increases revenue or cuts costs, it will run out of cash in about a year.

Runway is one of the most important numbers for start-ups and loss-making businesses. Founders use it to plan when to raise their next round of funding, which can take several months. Many aim to start fundraising while they still have a comfortable runway, because negotiating with little cash left weakens their position.

Runway estimates change as circumstances change. Faster growth in revenue extends runway, while unexpected costs or slower sales shorten it. Many companies model several scenarios to see how runway would change under different conditions.

When funding markets are difficult, investors often encourage companies to extend their runway by reducing spending, even if this slows growth.