The short answer. Burn rate is the cash your startup goes through each month, and runway is how many months you can keep going with the cash you have at that pace: cash divided by net burn. Before you raise, your runway has to cover the time it'll take to close the round, plus a margin in case it slips.
What you'll learn
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What gross burn, net burn and runway are, with examples.
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How to calculate them step by step, avoiding the usual mistakes.
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How many months of cash to have before you raise.
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Seven ways to extend your runway without slowing the business down.
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How to build a cash forecast with scenarios.
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What to do if your runway is already short.
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How to answer when an investor asks about your cash.
Knowing your cash is where every round starts (How to prepare a pre-seed or seed round). If you want to run the numbers as you read, the calculator is right here. (Runway calculator)
What is a startup's burn rate?
Definition Burn rate is the cash your startup consumes each month.
There are two ways to measure it, and it's worth knowing both:
| Item | Gross burn | Net burn |
|---|---|---|
| What it measures | Everything you spend in a month | What you lose in a month: spend minus cash collected |
| What it's for | Seeing the size of your cost base | Working out how long your cash lasts |
| Example | €50,000 of spend | €50,000 − €20,000 of revenue = €30,000 |
Tip For runway, always use net burn, with revenue collected, not invoiced. Cash comes in when the customer pays, not when you send the invoice.
What is runway?
Definition Runway is the number of months your startup can keep operating with its current cash at its current net burn.
Runway = available cash ÷ monthly net burn.
If closing a round takes months, your runway has to cover the round plus a margin.
How do you calculate runway step by step?
- Cash available today. What's in the bank, not counting committed money that hasn't arrived yet (an unclosed round, a grant not yet paid).
- Average monthly spend. The average of the last three months, not your cheapest month.
- Average cash collected. Also the average of the last three months.
- Net burn. Average spend minus average cash collected.
- Runway. Available cash divided by net burn.
- Adjust for what's coming. If you're about to hire or raise prices, recalculate with the expected spend and revenue.
Full example (fictional figures)
| Item | Amount |
|---|---|
| Available cash | €240,000 |
| Average monthly spend (last 3 months) | €42,000 |
| Average cash collected (last 3 months) | €12,000 |
| Net burn | €30,000 |
| Runway | 240,000 ÷ 30,000 = 8 months |
| If you hire 2 people (+€9,000 a month) | 240,000 ÷ 39,000 ≈ 6 months |
Common mistake Calculating runway with this month's spend and forgetting the planned hires. Plenty of founders discover they have six months of cash when they thought they had nine.
How many months of runway do you need before raising?
There's no single number, but there's a clear rule: your runway has to cover the time it'll take to close the round, plus a margin in case it slips. Raising with only a few months of cash puts you in the worst possible position to negotiate.
How to read your runway before a round
- urgency
- you negotiate under pressure
- focus on extending cash
- a tight margin
- start preparing the round now
- a comfortable position
- prepare the round calmly
And a lot of time passes between one round and the next: according to Carta, the median time between seed and Series A reached 616 days, a little over 20 months, in the second quarter of 2025. Your runway needs to assume everything takes longer than planned.
Running out of cash is also the most cited reason startups shut down. In CB Insights' March 2026 analysis of venture-backed startups that closed since 2023, 70% cited running out of capital, although the report itself notes that this is almost always the final cause, not the root problem.
Why startups shut down (CB Insights, 2026)
How to read it. Running out of cash almost never comes as a surprise. It comes from not looking at runway every month, or from looking at it with optimistic numbers. I've seen projects with a strong concept spend their cash on development and presentations before they ever got to selling. (Jordi Gil's stories)
Why is runway one of the first things an investor asks about?
Because it tells them three things at once: whether you know your numbers, how much of a hurry you're in, and how much room their money will have to prove something. A shaky answer here does more damage than any slide can repair.
How to answer (example): "We have €240,000 in cash and a net burn of €30,000 a month: eight months of runway. If the round slips, we can stretch that to about 11 months by cutting €8,000 a month: renegotiating with two suppliers and getting customers to pay annually up front."
(The questions an investor will ask you)
Do it with a method Your cash and your round, with scenarios. The Startup Index Score founder report works out how long your cash lasts, what happens if the round slips and which round makes sense for your situation. Start free: your level from 1 to 5 and your first three priorities. (Start the evaluation)
How do you extend your runway without slowing the business down?
| Lever | What to do | Effect |
|---|---|---|
| 1. Collect sooner | Invoice in advance, offer annual plans at a discount | More cash today, same revenue |
| 2. Pay smarter | Renegotiate payment terms with suppliers | Less cash going out this month |
| 3. Cut what doesn't move the needle | Review subscriptions, tools and spend with no return | Lower burn without touching growth |
| 4. Stage your hiring | Hire when you hit milestones, not before | Spend tied to results |
| 5. Prioritize quick revenue | Customers with short sales cycles | Revenue that brings net burn down |
| 6. Non-dilutive funding | Public loans, grants, tax credits | Cash without giving up equity |
| 7. Raise prices | If the value justifies it | More revenue per customer |
Tip Cutting isn't the only lever. Collecting sooner or charging more often extends runway further than any cut, and without slowing growth.
How do you build a cash forecast with scenarios?
Today's runway is a snapshot. To make decisions you need the full picture over time: how your cash will move month by month over the next 12 to 18 months.
- Start from today's cash and your real net burn.
- Add, month by month, what you already know will change: hires, price increases, annual costs, grants already awarded.
- Build two scenarios: a base case with your forecasts, and a cautious one with revenue arriving three months later and 20% lower (adjust these assumptions to your case).
- Mark the month when cash drops below your minimum cushion in each scenario. That's your real deadline for closing the round.
- Update the forecast every month with actual figures.
| Scenario | Revenue assumption | Month cash hits the minimum (fictional example) |
|---|---|---|
| Base | As planned | Month 11 |
| Cautious | Three months later and 20% lower | Month 8 |
Tip Plan the round around the cautious scenario, not the base case. If things go well, you'll have room to spare; if they don't, it won't catch you off guard.
What should you do if your runway is already short?
With less than six months of cash, the order of your decisions matters:
- Recalculate with real figures, not the plan's. Sometimes the problem is bigger; sometimes it's smaller.
- Pull the quick levers first: collect sooner, defer payments that can be deferred, and freeze anything that doesn't move the business.
- Talk to your existing investors early, if you have any. A bridge round or a convertible loan is far easier to negotiate with three months of cash than with one.
- Look at non-dilutive funding you can get in time; some takes months to arrive.
- Decide honestly. If there's no credible path to growth, knowing when to stop protects your team, your investors and you.
What do default alive and default dead mean?
They're two ideas Paul Graham popularized in 2015, and many investors use them today:
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Default alive: at the current spend and growth, the startup would reach profitability before running out of cash.
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Default dead: at the current spend and growth, it would run out of cash before becoming profitable, unless it raises money.
Knowing which one you are changes the conversation with an investor: raising money to accelerate is not the same as raising it to survive.
Does runway matter if you're not raising?
Even more. If you're growing on your own money, every decision counts double: there's no round to make up for an expensive mistake. Tracking your runway every month is the simplest way to know whether you're making progress or just hanging on.
What I've seen I launched Healthiers, a medical second-opinion service, with a promotion channel that was available when we designed it. A few months after launch, the big platforms changed their policies for the health sector and that channel disappeared. We shut it down before burning more cash with no clear path to growth.
(Startup health check, even if you're not raising · How to measure your startup's progress)
Which costs get forgotten when calculating burn rate?
The ones that don't land every month. That's why runway often looks longer than it is:
| Cost | Why it's forgotten | How to handle it |
|---|---|---|
| Quarterly and annual taxes | They arrive in one go | Spread them across the months |
| Annual insurance and licenses | Paid once a year | Spread them across the months |
| Extra salary payments (Spain's "pagas extra", usually two a year) | Not in the regular monthly payroll | Spread them across the twelve months |
| Loan repayments | They start after the grace period | Include them from the month they start |
| Travel and events for the round | They feel like one-offs | Budget them in the round plan |
| VAT you owe | The VAT you collect isn't yours | Don't count it as available cash |
Common mistake Counting the VAT you've charged customers as cash. Part of that money goes to the tax authorities in your next return; if you count it, your real runway is shorter than you think.
How should you report your cash to investors each month?
If you already have investors, or will soon, a short monthly update builds trust and gets you ready for the next round. Four figures are enough:
- Cash at month end.
- Net burn for the month and the three-month average.
- Runway in months, in the base and cautious scenarios.
- What has changed and which decisions are coming.
An investor who gets these figures every month never gets a nasty surprise. And flagging a cash problem early gives you options; keeping quiet takes them away.
What are the most common mistakes when calculating runway?
| Mistake | Why it misleads | What to do instead |
|---|---|---|
| Counting money that hasn't arrived | An unclosed round or an unpaid grant isn't cash | Available cash only |
| Using invoiced revenue | Cash comes in when you're paid | Revenue collected |
| Using your cheapest month | It inflates runway | Average of the last 3 months |
| Forgetting annual costs | Insurance, licenses or taxes land all at once | Spread them across the months |
| Leaving out planned hires | Real burn will be higher | Recalculate with the plan |
| Calculating it once | Things change every month | Update it every month |
Checklist: your runway before you talk to investors
Before you talk cash with an investor
A guide, not a rulebook. You can print it.
Tool: work out your runway and burn rate in a minute (Runway and burn rate).
In short
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Net burn is what you lose each month; runway is how many months you have left.
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Runway = available cash ÷ net burn.
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Use three-month averages and cash collected.
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Your runway has to cover the round plus a margin.
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To extend it, collecting sooner or charging more usually works better than cutting.
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Plan around the cautious scenario, not the base case.
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Even if you're not raising, track it every month.
Do it with a method Check your cash and your round with scenarios. Evaluate your startup with Startup Index Score: free, in 30–40 minutes. (Start the evaluation)
Frequently asked questions
What's the difference between gross and net burn? Gross burn is everything your startup spends in a month; net burn is what it loses: spend minus cash collected. To know how many months your cash will last, you use net burn. Gross burn shows the size of your cost base and where the money goes.
How many months of runway should a startup have? There's no single number, but before you raise, your runway should cover the time it takes to close the round plus a margin in case it slips. With under six months, you negotiate under pressure; with over twelve, you can prepare the round calmly. Every market has its own pace.
Does money from a round that hasn't closed count? No. Only cash available today counts toward runway. An unclosed round, a grant awarded but not yet paid, or an outstanding customer payment isn't cash until it arrives. Counting it early is the mistake that inflates runways most often.
What does default alive mean for a startup? It describes a startup that, at its current spend and growth, would become profitable before running out of cash, without needing to raise more money. The opposite is default dead. Paul Graham popularized the idea in 2015, and it changes the conversation with investors.
How often should I recalculate my runway? Every month, with the actual figures for the month just closed, and whenever something important changes: a hire, a big customer, a jump in costs. The Startup Index Score evaluation includes your cash and your round with scenarios so you can see the effect of each decision.
Keep reading
Sources
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Carta, time between seed and Series A in Q2 2025 (September 2025): carta.com/data/series-a-fundraising-q2-2025
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CB Insights, "The top reasons startups fail," March 2026: www.cbinsights.com/research/report/startup-failure-reasons-top/
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Paul Graham, "Default Alive or Default Dead?" (2015): paulgraham.com/aord.html
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The examples with figures are fictional.
About the author
Jordi Gil is the creator of Startup Index Score. He has spent almost 30 years developing projects and working with startups across the Americas, Europe and Asia. (Meet Jordi Gil)