Runway
QUICK ANSWER
Runway is the number of months a startup can continue operating at its current burn rate before it runs out of cash.
In depth
Runway is calculated by dividing total available cash by the net burn rate. It is a critical metric for early-stage startups as it determines how much time the company has to reach key milestones or raise additional funding. A longer runway provides flexibility, while a short runway increases pressure on growth and fundraising. Founders often aim to maintain at least 12 to 18 months of runway to ensure stability and negotiating leverage with investors.
Example
Let’s consider a real-world example of a startup calculating its runway.
Cash in bank: $900,000
Monthly net burn: $75,000
Runway = $900,000 ÷ $75,000 = 12 months
The startup has one year to grow or raise more capital.