Runway

Why the simple division is usually optimistic

Cash divided by burn assumes burn stays flat. It rarely does. Companies hire, expand infrastructure, and increase acquisition spend, so burn trends upward in most months that are not preceded by a deliberate freeze. The static calculation quietly assumes away exactly the growth your operating plan calls for, which is why the runway in a board deck often disagrees with the runway implied by the hiring plan two slides later.

Build the growth-adjusted version whenever burn has a trend: project each month's burn forward at the observed growth rate and find the month where cumulative spend crosses your cash balance. If those two slides disagree, the plan and the runway are not the same document, and the plan is the one people will act on.

What actually counts as cash

Only unrestricted cash and equivalents. Four things routinely get counted that should not be:

• Undrawn credit facilities. Not cash until drawn, and covenants have a habit of tightening in exactly the conditions where you need to draw.
• A signed but unfunded round. Rounds fall through. Model runway both with and without it, and never present only the optimistic line.
• Receivables. Invoiced is not collected. If your collection period is 45 days, that money is real but it is not available this month.
• Deferred revenue. This is the dangerous one, because the cash is genuinely in the bank. It is also an obligation to deliver twelve months of service, and if the company winds down that obligation becomes a liability. It extends runway in fact, but it is not a cushion in the way retained profit is.

Default alive or default dead

Paul Graham's framing is more useful than the raw month count: on your current growth and burn trajectory, do you reach profitability before the money runs out? A company is default alive if the answer is yes and default dead if it is no. The distinction matters because it changes what a runway number means. Twelve months of runway on a default-alive path is comfortable; twelve months on a default-dead path is a fundraising deadline with a countdown attached, and it should be treated as one.

Working it out requires projecting both revenue growth and burn growth forward, which is the same modelling work as growth-adjusted runway — you are already most of the way there.

The three runways worth having ready

Any serious plan carries three numbers, and investors ask for the third almost immediately.

• Plan runway — burn as the operating plan assumes, including planned hiring.
• Current runway — burn held at today's trailing three-month average.
• Cut runway — what runway becomes if you froze hiring and discretionary spend today. This is your genuine floor, and knowing it is what lets you take a risk without gambling the company.

One arithmetic detail people miss: the last months of runway are not fully spendable. Winding down or restructuring costs money — notice periods, contract exits, final payroll — so treat the true zero as arriving somewhat before the calculated one.

Fundraising arithmetic

Conventional guidance is to raise enough for 18 to 24 months, on the reasoning that a company needs roughly a year to demonstrate progress plus two quarters to run a process. That is a convention about fundraising cycles rather than a measured benchmark, and it moves with the funding environment. The operational corollary is firmer: start raising while you still have enough runway to survive a failed process, which in practice means beginning well before six months remain, not at six months. Watch burn, growth rate and runway on the same page, because a fundraise is judged on all three at once.