Glossary
What Is Runway in a Startup?
Updated · Team Fonda
Short answer
Runway is the number of months a business can keep operating before it runs out of cash. You calculate it by dividing the cash you have by your net monthly burn, which is your monthly spending minus your monthly revenue.
Key takeaways
- Runway = cash in the bank / net monthly burn.
- It tells you how long you have to reach your next proof point, such as first customers or a funding round.
- You make it longer by spending less, earning more or raising money, and raising money takes time, so start early.
What runway means
Every new business spends money before it earns enough to cover its costs. Runway measures how long that can go on. The name comes from aviation: a plane has a fixed length of runway to get off the ground, and a startup has a fixed number of months to become self-sustaining or raise more money.
Founders track runway because it sets the deadline for everything else. If you have five months of cash, a plan that needs nine months to show results is not a plan you can afford.
How to calculate runway
Formula
Runway in months = cash in the bank / (monthly expenses - monthly revenue)
The amount in brackets is your net burn rate. For example, with $40,000 in the bank, $6,000 of monthly expenses and $1,000 of monthly revenue, net burn is $5,000 and runway is 8 months.
You can run your own numbers in the free startup runway calculator.
Why runway matters before you have a company
Runway is not only for funded startups. If you are leaving a job to start a business, your personal savings are your runway. Work out how many months you can cover your living costs and business costs together, and decide in advance what you need to have proven by the halfway point.
- Side project: your salary covers you, so runway is effectively unlimited. This is why many founders start on the side.
- Full time on savings: runway is savings divided by monthly living and business costs.
- Funded startup: runway is the cash raised divided by net burn.
How to extend your runway
- Validate before you build. Talking to customers costs almost nothing and can save months of building the wrong thing.
- Delay fixed costs. Hires, offices and annual contracts shorten runway the most because they are hard to undo.
- Bring revenue forward. Pre-orders, deposits and annual plans put cash in the bank earlier.
- Raise money early. Fundraising often takes months, so start while you still have room to say no to a bad offer.
Common mistakes
- Counting money you do not have yet. Promised investment and unpaid invoices are not cash.
- Forgetting your own pay. If you need the business to pay you, include it in expenses.
- Assuming costs stay flat. Spending usually grows as you hire and market, so re-check runway every month.
Frequently asked questions
How many months of runway should a startup have?
There is no fixed rule. After a funding round, you need enough months to reach the proof point your next round depends on, plus the months it takes to raise that round. If you are self-funded, aim for enough time to reach your next clear proof point, with a margin for delays.
What is the difference between runway and burn rate?
Burn rate is how much cash the business loses each month. Runway is how many months it can keep losing that amount. You need burn rate to calculate runway.
What happens when runway reaches zero?
The business can no longer pay its bills. Before that point, founders usually cut costs, raise money, sell the business or close it in an orderly way. The earlier you act, the more of those options you still have.