Framework
Term

Runway

The number of months a company can continue operating at its current spend before exhausting its cash. Runway = current cash ÷ monthly net burn. It is the most important number on a startup CEO's dashboard.

Runway is how many months a startup can keep operating before running out of cash. The formula:

Runway (months) = Cash on hand / Net monthly burn

Net burn = cash going out − cash coming in. For pre-revenue companies, net burn = gross burn (all expenses). For revenue-generating companies, net burn = expenses − revenue collected.

Why 18 months is the canonical target

Most venture-backed startups target raising enough to extend runway to ~18 months. The reason: fundraising itself takes 3–6 months end-to-end, and meaningful business milestones (significant ARR growth, product launches, new geographies) take 12+ months. Runway of less than 12 months puts a company into "always fundraising" mode, which compresses execution.

Three runway thresholds founders track

  • 18+ months: comfortable, can prioritize the business over fundraising
  • 12 months: time to start the next raise; lead investor outreach should begin
  • 6 months: critical — bridge financing, cost cuts, or pivot become the priority

Below 3 months, founders typically stop comparing offers and accept what's on the table.

How runway changes

Runway grows in three ways: raise more capital, cut burn, or generate revenue net of cost. The fastest lever is usually cutting burn — headcount accounts for ~70% of typical startup costs, so reducing team or compensation extends runway proportionally. The slowest lever is revenue, which scales over quarters not weeks.

Related

  • Burn Rate — the denominator of runway
  • Unit Economics — whether each customer adds to or subtracts from runway
  • CAC — the single largest item in many startups' burn

See also

Nearby terms

All terms →
Retention

The share of customers (or users, or revenue) that continues to engage with a product over a defined time window. Retention is the closest single proxy for whether a product is delivering ongoing value.

Rule of 40

A SaaS-investing heuristic: a healthy software company's growth rate plus its profit margin should sum to at least 40. The rule trades growth for profitability — either 40% growth with 0% margin or 0% growth with 40% margin clears the bar.

Segmentation

The practice of dividing a market into groups that share buying behavior, needs, or willingness to pay. Useful segmentation produces groups large enough to matter and homogeneous enough to act on differently.

SWOT

A 2×2 strategy framework that maps a position across four dimensions: internal Strengths and Weaknesses (what the team controls) and external Opportunities and Threats (what the market is doing around it). Developed by Albert Humphrey at Stanford in the 1960s.