Understanding Startup Runway: A Complete Guide
Learn what runway means, how to calculate it accurately, and why it's the most important metric for early-stage founders.
Runway is arguably the most critical metric for any startup. It tells you exactly how long your company can survive with its current cash and burn rate. Yet many founders don't fully understand it—or calculate it incorrectly.
What is Startup Runway?
Runway is the amount of time your startup can operate before running out of money, assuming your current burn rate stays constant. It's typically measured in months.
How to Calculate Runway
The basic formula is simple: Runway = Cash Balance / Monthly Net Burn Rate
For example, if you have $500,000 in the bank and you're burning $50,000 per month, your runway is 10 months.
Why Runway Matters
Understanding your runway helps you make better decisions about hiring, spending, and fundraising. It's the foundation of financial planning for any startup.
Common Mistakes
Many founders make critical errors when calculating runway:
- Using gross burn instead of net burn
- Ignoring upcoming large expenses
- Overestimating revenue growth
- Not updating calculations regularly
Best Practices
To get an accurate picture of your runway:
- Update your calculations weekly
- Use actual bank balances, not accounting figures
- Factor in known upcoming expenses
- Build in a safety buffer
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