Cash Runway
The number of months a company can continue operating before it exhausts its cash reserves, assuming current burn rates.
FORMULA
Runway (Months) = Current Cash Balance / Average Monthly Net Cash BurnWhy it matters
Cash Runway is the most critical survival metric for any startup. It dictates the timeline for achieving profitability or raising the next round of funding. Boards typically demand a minimum of 18 to 24 months of runway after a fundraise. Tracking runway requires a realistic assessment of monthly burn. Best practice dictates calculating runway using a trailing 3-month average burn rate to smooth out one-time expenses, while running downside scenarios that assume zero revenue growth. Running out of runway is the primary reason startups fail.
2025 BENCHMARK
a16z 2025 portfolio guidance recommends maintaining a minimum of 24 months of cash runway under base-case scenarios.
COMMON MISTAKES
- Calculating burn using a single month of data, which may be anomalously low.
- Assuming aggressive future revenue growth to extend modeled runway, hiding the true downside risk.
- Excluding accrued liabilities that will require cash settlement.
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