Divide cash by net burn for the headline, then run the months forward: growing costs shorten it, and the fundraise has to start long before the last month.
Runway is cash in the bank divided by monthly net burn, the cash going out less the cash coming in. An illustrative startup with 9,000,000 of cash and a net burn of 500,000 has 18.0 months on that formula. But the formula assumes the burn stays flat, and in a growing company it rarely does: with revenue growing 5 per cent a month and costs 3 per cent, the burn rises every month and the cash runs out at 15.7 months.
Worked in full in The Venture Capital Associate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The headline figure is the one in the board deck; the month-by-month figure is the one the bank account follows. In diligence, the associate's job is to compute both and to ask which date the fundraising plan is built on.
| Input | Value |
|---|---|
| Cash at the start | 9,000,000 |
| Monthly revenue collected, month 1 | 250,000 |
| Monthly operating costs, month 1 (gross burn) | 750,000 |
| Revenue growth per month | 5.0% |
| Cost growth per month (hiring plan) | 3.0% |
| Time to close a round | 6 months |
| Buffer wanted at closing | 3 months |
Static runway = cash ÷ (costs − revenue)
Dynamic runway: cashm = cashm−1 − (cost1 × (1 + gc)m−1 − revenue1 × (1 + gr)m−1), until it reaches zero
In Excel, put months in column A, then revenue =$B$2*(1+$B$4)^(A8-1), costs =$B$3*(1+$B$5)^(A8-1), burn as costs less revenue, and closing cash as the previous balance less the burn. Runway is the last month with positive cash plus the fraction of the next month the balance covers.
Step 1, the static figure. Net burn is 750,000 − 250,000 = 500,000, so runway is 9,000,000 ÷ 500,000 = 18.0 months. On gross burn, if revenue stopped, it would be 12.0.
Step 2, run the months. Revenue grows faster in percentage terms, but from a base a third the size, so costs add more money each month: in month 2 revenue rises by 12,500 and costs by 22,500. The burn therefore increases.
| Month | Revenue | Costs | Net burn | Cash at month end |
|---|---|---|---|---|
| 1 | 250,000 | 750,000 | 500,000 | 8,500,000 |
| 6 | 319,070 | 869,456 | 550,385 | 5,849,171 |
| 12 | 427,585 | 1,038,175 | 610,591 | 2,335,259 |
| 15 | 494,983 | 1,134,442 | 639,459 | 445,455 |
Step 3, find the zero. Month 16 burns more than the 445,455 left, so the cash runs out at 15.7 months. Over that period the average burn is 573,737, not the 500,000 the static formula used. The static figure overstated runway by more than two months.
Runway is only useful against the fundraising calendar. With six months to close a round and a three-month buffer wanted at closing, the company must be in market with nine months of cash still in hand: 15.7 − 6 − 3 = month 6.7. At the end of month 6 it still has 5,849,171 in the bank, which feels comfortable and is in fact the deadline. A company that waits for "six months of runway left" before raising has already lost its buffer.
Use cash collected, not revenue recognised. Annual contracts paid upfront lengthen runway; a large customer on 90-day terms shortens it. The same distinction is why the burn multiple starts from cash burn, as set out in how to calculate the burn multiple.
| Scenario | Revenue growth | Cost growth | Outcome |
|---|---|---|---|
| Flat burn (the static formula) | 0% | 0% | cash out at 18.0 months |
| Hiring plan, no revenue growth | 0% | 3% | cash out at 13.6 months |
| Slower growth | 3% | 3% | cash out at 14.6 months |
| Base case | 5% | 3% | cash out at 15.7 months |
| Faster growth | 8% | 3% | cash out at 21.7 months |
| Hiring freeze | 5% | 0% | break-even in month 24, low point 2,107,619 |
| Much faster growth | 10% | 3% | break-even in month 18, low point 2,814,985 |
Two levers dominate. The hiring plan alone takes 4.4 months off the static figure. A hiring freeze turns the company from one that needs a round into one that reaches break-even with cash left, which is the "default alive" test. On the base case the company is default dead: revenue would overtake costs only in month 58.1, after a cumulative burn of 34,122,163, so it needs 25,122,163 of further funding to get there on its current plan. Cutting month-1 costs by 15 per cent, to 637,500, extends runway to 20.3 months but does not change that verdict.
For an investor the same arithmetic sizes the round. If the company wants 24 months of runway after closing on the base-case plan, the round has to cover the month-by-month burn for that period, not 24 times today's burn, and the gap between the two is the hiring plan.
Dividing today's cash by today's burn and stopping. In a company that is hiring ahead of revenue, the burn next quarter is higher than the burn this quarter, so the static figure is always optimistic. The second mistake is quoting the zero-cash date as if it were the fundraising date: the meaningful date is the zero-cash month less the time to raise and the buffer, here month 6.7, not month 15.7.
The unit economics workbook that sits behind this kind of diligence is in the free companion files for this book, including the test of what happens to revenue if acquisition spend is cut to zero.
Net burn, cash out less cash in, because that is what depletes the bank balance. On the example, 9,000,000 over a net burn of 500,000 gives 18.0 months; over the gross burn of 750,000 it would be 12.0. Gross burn runway is still worth stating as the floor if revenue stopped, which is the question a lender or a nervous board will ask.
Enough to finish a fundraise with room to spare. If a round takes about six months and you want a three-month buffer, you must start raising with at least nine months of cash left, which here means by month 6.7 of a 15.7-month runway. Rounds are usually sized for 18 to 24 months so that the next raise starts from evidence, not from urgency.
A company is default alive if, on current growth and costs, it reaches break-even before the cash runs out. Here revenue overtakes costs only at month 58.1, after a cumulative burn of 34,122,163 against 9,000,000 in the bank, so the company is default dead and needs 25,122,163 more. Revenue growth of 10 per cent a month would reach break-even at month 18 with 2,814,985 to spare.
This article is one calculation from The Venture Capital Associate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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