Runway

Runway is the period that a start-up can still survive with its existing cash. It is calculated as available liquidity divided by the monthly burn rate. A short runway is a warning signal that fresh capital will soon be needed. What matters is net burn, meaning the actual monthly reduction in cash, not gross burn. Planned hires, outstanding investments and committed but undrawn financing tranches should also be reflected.

Because a new financing round takes several months from first approach to receipt of funds, the practically decisive figure is not the runway to insolvency but the time remaining until a financing must be launched. Founders therefore plan with a buffer and size a round to cover 18 to 24 months, leaving enough time to reach the metrics the next round will expect while still negotiating with reserves. Once runway falls below around six months, bargaining power shifts noticeably to the providers of capital, which shows up in valuation and terms.

For management a liability dimension is added, because illiquidity triggers filing duties under insolvency law. A company with 3 million euros of cash and 250,000 euros of monthly burn has twelve months on paper, though planned hires and capital expenditure shorten the actual figure. Burn efficiency is assessed alongside runway, usually as the ratio of net burn in a period to the recurring revenue added in the same period.

Note: This explanation is for general information only and does not constitute legal advice. The legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified lawyer.