Question 1

What is startup runway?

Accepted Answer

Startup runway is the amount of time your company can continue operating before running out of cash, based on your current burn rate. It's typically measured in months and calculated by dividing your available cash by your monthly burn rate. For example, if you have $500,000 in the bank and burn $50,000 per month, you have 10 months of runway. This metric is critical for startups to understand how much time they have to achieve profitability, secure additional funding, or reach key milestones that will make them attractive to investors.

Question 2

How do I calculate my burn rate?

Accepted Answer

Burn rate is calculated by subtracting your monthly revenue from your monthly expenses. There are two types: gross burn rate (total monthly expenses regardless of revenue) and net burn rate (expenses minus revenue). For most startups, net burn rate is more relevant. To calculate it: add up all monthly costs including salaries, rent, software subscriptions, marketing, and other operational expenses, then subtract your monthly revenue. For example, if you spend $80,000/month and earn $30,000/month in revenue, your net burn rate is $50,000/month. Track this monthly to identify trends and make informed decisions.

Question 3

What's a healthy runway length for a startup?

Accepted Answer

Most investors and advisors recommend maintaining at least 12-18 months of runway at all times. This gives you enough time to execute your business plan, hit key milestones, and raise your next funding round if needed. The fundraising process typically takes 6-9 months, so you should start raising when you have 12-15 months left. Early-stage startups often aim for 18-24 months of runway to reduce pressure and allow for experimentation. If your runway drops below 6 months, it becomes a critical situation requiring immediate action like cost-cutting, revenue acceleration, or emergency fundraising. The ideal runway length also depends on your growth stage, market conditions, and business model.

Question 4

How can I extend my startup's runway?

Accepted Answer

There are several strategies to extend runway: 1) Increase revenue through sales acceleration, price increases, or new revenue streams. 2) Reduce burn rate by cutting non-essential expenses, renegotiating contracts, reducing headcount, or moving to cheaper office space. 3) Secure non-dilutive funding like grants, revenue-based financing, or debt. 4) Delay hiring plans or reduce salaries temporarily. 5) Negotiate payment terms with vendors (extend payables) and customers (accelerate receivables). 6) Focus on high-margin products/services and pause low-margin initiatives. The best approach combines modest growth in revenue with strategic cost reductions, rather than drastic cuts that could harm your product or team morale. Always model different scenarios to understand the impact of each decision.

Question 5

When should I start raising more capital?

Accepted Answer

Start fundraising when you have 12-15 months of runway remaining. This timing is crucial because: 1) Fundraising takes 6-9 months on average from first pitch to money in the bank. 2) You want to raise from a position of strength, not desperation. 3) You need time to hit milestones that will increase your valuation. 4) Market conditions can change, potentially delaying your raise. If you wait until you have only 6 months left, you're in a weak negotiating position and may accept unfavorable terms. Conversely, raising too early (with 20+ months of runway) can be challenging as investors may question why you need the money now. The ideal scenario is raising when you have strong metrics, clear traction, and enough runway to wait for the right deal.

Question 6

What are common mistakes in runway calculation?

Accepted Answer

Common mistakes include: 1) Forgetting to include all expenses like taxes, insurance, legal fees, and one-time costs. 2) Being overly optimistic about revenue projections - use conservative estimates. 3) Not accounting for seasonal variations in revenue or expenses. 4) Ignoring payment delays and accounts receivable - just because you invoiced doesn't mean you have the cash. 5) Failing to update calculations monthly as circumstances change. 6) Not planning for unexpected expenses or buffer for emergencies (add 10-15% cushion). 7) Confusing gross burn with net burn rate. 8) Not factoring in the time value of money or interest on savings. 9) Assuming linear burn rate when hiring or growth plans will increase expenses. Always calculate multiple scenarios (best case, expected case, worst case) and update your model regularly.

Question 7

Should I include founder salaries in burn rate calculations?

Accepted Answer

Yes, absolutely include founder salaries in your burn rate calculations, even if founders are currently working for reduced pay or equity-only. Here's why: 1) It gives an accurate picture of your true operating costs. 2) Investors want to see realistic expense modeling. 3) It helps plan for when you'll need to pay market-rate salaries. 4) It prevents surprises when founders eventually need to draw salary. If founders are currently unpaid or underpaid, calculate two scenarios: current burn rate (actual cash out) and normalized burn rate (with market salaries included). This shows investors you understand your true cost structure. Many early-stage founders defer salary, but this isn't sustainable long-term. Your financial model should reflect the reality that founders will eventually need competitive compensation to remain fully committed and avoid burnout.

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