Definition (canonical)
Runway is the number of months a company can operate before cash runs out: `runway = cash on hand ÷ monthly net burn`. It is the startup's master clock — every strategic decision (hiring, fundraising, pivoting) is really a decision about what happens to this number.
Computing it honestly
Use net burn (expenses minus actual revenue collected), not gross; use CASH accounting, not accruals — invoices sent are hope, cash received is runway. 600k in the bank at 50k net burn = 12 months. Three honesty rules: model burn FORWARD (planned hires and known cost increases, not last quarter's average); haircut receivables by realistic collection; and treat committed-but-unsigned funding as zero. Companies die of optimistic runway math more often than of bad products — the spreadsheet said 14 months, reality delivered 9.
The thresholds that trigger action
18+ months: strategic comfort — invest, experiment. 12 months: if you plan to raise, START NOW — a fundraising process takes 6–9 months, and negotiating with 6 months left means negotiating on your knees. 6 months: emergency mode — cuts, bridge financing, or a strategic process; every option is still open but none is cheap. 3 months: survival only — payroll obligations and orderly wind-down duties enter the picture (insolvency clocks tick in many jurisdictions). The meta-rule: each threshold demands the decision one level earlier than feels natural, because every lever takes months to move the number.
Extending runway — the lever list
In rough order of speed: cut discretionary spend (weeks); renegotiate contracts and payment terms (a month); freeze hiring — the largest lever in software, where payroll is 70%+ of burn; collect receivables aggressively; convert annual prepay deals (cash today for discount); revenue-based or venture debt as bridge; down-round or insider bridge as the honest last resorts. And one lever that beats them all when available: revenue growth — the only extension that compounds instead of merely postponing.
FAQ
Does runway include committed credit lines? Count them separately — "cash runway" and "cash+credit runway"; lines can be pulled exactly when you need them most.
Default alive or default dead? Paul Graham's question: at current growth and burn, do you reach profitability before zero? Answering it monthly reframes every plan.
Runway for profitable companies? Still worth tracking as shock absorber — months of operating costs covered by reserves; 3–6 months is standard resilience.
Related: Burn Rate · Cash Flow · Venture Capital · Bootstrapping Reviewed: 2026-07-16 · Sources: startup finance canon