Business Dictionary
Runway
Definition
The amount of time a company has before it runs out of money.
Deep Dive
Runway is a financial metric that represents the amount of time a company has before it runs out of money, given its current cash reserves and its burn rate. It's calculated by dividing the total cash on hand by the net burn rate (cash spent per month that isn't covered by revenue). This metric is particularly vital for startups and venture-backed companies that are not yet profitable, as it dictates how much time they have to reach key milestones, achieve profitability, or secure additional funding before their funds are exhausted.
Examples & Use Cases
- 1A startup with $1 million in the bank and a net burn rate of $100,000 per month has 10 months of runway
- 2A company extends its runway from 6 to 9 months by implementing cost-cutting measures, such as reducing marketing spend
- 3An early-stage firm with only 4 months of runway initiates an urgent new funding round to avoid insolvency.
Related Terms
Burn RateCapitalizationLiquidity