Runway / Burn Rate

What they are

Burn rate is the rate at which a startup spends cash, in dollars per month. Runway is how many months of operations the startup can fund at that burn before the bank account hits zero.

Runway (months) = current cash ÷ monthly burn rate

A founder with $60,000 in the bank burning $10,000 a month has six months of runway. When that founder is also closing $3,000 in revenue each month, burn drops to $7,000 net and runway extends to 8.6 months.

Gross burn vs net burn

These are different numbers. Be precise about which one you mean.

Term	Formula	When to use
Gross burn	Monthly cash out (expenses only)	Stress-testing in a scenario where revenue stops
Net burn	Monthly cash out minus monthly revenue	Everyday planning, runway projections

Quoting gross burn when you mean net (or vice versa) confuses investors and bites founders during diligence. Pick the right one for the context.

Three runway thresholds that matter

The Y Combinator default rule of thumb, drawn from Paul Graham’s Default Alive or Default Dead:

• Under 3 months: emergency. Find a job, raise bridge, cut costs aggressively, in that order.
• 3 to 6 months: serious. Start raising right now (rounds take 3-6 months to close) or have a credible path to profitability.
• 6 to 12 months: comfortable. Plan the next round or the path to default-alive.
• 12+ months: you have time to build before fundraising pressure returns.

Graham’s “default alive” test: at the current growth rate of revenue and expenses, will you be profitable before you run out of money? If yes, default alive. If no, default dead, and the only way out is to raise.

What they are NOT

What runway actually is	What people confuse it with
Months until cash hits zero at current burn	Months until next financial milestone
Sensitive to revenue and expense changes	A static, set-and-forget number
Net of recurring revenue	Just savings ÷ expenses

A founder calling “12 months of runway” off $120K of savings divided by $10K rent while ignoring $4K of subscription revenue is reporting gross runway. Net runway (factoring revenue) is higher; that’s the more useful figure for the build/no-build decision.

Worked example

A solo founder has $90,000 in the bank. Monthly expenses:

• $4,000 personal living costs
• $1,200 for SaaS tools and infrastructure
• $800 for contractors
• $500 in misc (taxes set-aside, hardware amortized)

Gross burn = $6,500/month. Gross runway = $90,000 ÷ $6,500 = 13.8 months.

The product earns $2,000/month in subscription revenue.

Net burn = $6,500 − $2,000 = $4,500/month. Net runway = $90,000 ÷ $4,500 = 20 months.

The founder shifts 2 hours/day to a part-time consulting gig at $80/hour, earning an additional $3,200/month.

Adjusted net burn = $6,500 − $2,000 − $3,200 = $1,300/month. Adjusted runway = $90,000 ÷ $1,300 = 69 months.

The maths is the same; the inputs change everything. Part-time consulting + bootstrapped revenue is one of the most reliable runway extenders for solo founders, and almost nobody factors it in until they’re already at three months.

Common mistakes

1. Reporting gross when you mean net. A founder with $1M in the bank burning $80K gross but earning $50K MRR has 33 months net runway, not 12 months gross. Quote net unless explicitly stress-testing.

2. Forgetting taxes and one-time costs. Many founders model only recurring expenses. Quarterly tax payments, annual SaaS renewals, and the one-off laptop purchase combine to consume 8-12% of the runway nobody planned for.

3. Assuming revenue keeps growing. A runway model that assumes 10% MoM revenue growth past month 6 is fragile. Build a “what if revenue stays flat” version and use that one for raising-decision timing.

4. Refusing to cut costs until month 3. By the time runway hits three months, your cost cuts have to ship instantly. Decide your cut-cost triggers in advance (e.g., “if I’m at six months and growth is flat, contractors go”).

Further reading

• Paul Graham, Default Alive or Default Dead. The framing every founder should pressure-test their model against.
• Startup runway calculator. Plug your numbers in and get the verdict.
• Burn rate calculator. For the gross vs net split.