Why does Burn Rate and Runway matter?
Runway is the constraint every other plan sits inside. It determines how many experiments you get, when you have to start fundraising, and whether you will be raising from a position of progress or of need, which materially changes the terms you get. Founders routinely discover their real runway two months later than they should have, and by then the options have narrowed from several to one.
What does Burn Rate and Runway look like in practice?
Gross burn is total monthly cash out. Net burn subtracts cash in, so a company spending $180,000 and collecting $60,000 has a net burn of $120,000. With $1.2M in the bank, that is ten months of runway at the current rate. The number that actually matters is usually smaller: fundraising takes months, so the date you must start raising is well before the date the account empties, and if hiring is planned, burn will rise, which means the real runway is shorter than a flat division suggests.
What are the common mistakes with Burn Rate and Runway?
- Calculating runway from today's burn while planning to hire, which overstates it.
- Confusing gross and net burn, particularly when revenue is lumpy.
- Measuring runway to zero rather than to the point where you must begin raising.
- Treating expected revenue as certain. Runway is a floor, and it should be calculated conservatively enough to still be true if things go slightly wrong.
Related concepts
- CAC Payback PeriodHow long it takes for the gross profit from a customer to repay what you spent acquiring them.
- Round SizingHow much you raise, chosen as the amount that buys enough time to reach the next milestone that changes what you can prove, and stated in the pitch alongside what it buys.
- Gross Burn vs. Net BurnGross burn is total cash spent in a month with revenue ignored; net burn subtracts what came in, and the gap between them is exactly the part of your runway that depends on revenue holding up.