Question 1

How do you calculate runway?

Accepted Answer

Runway is your cash balance divided by your net monthly burn, where net burn is monthly expenses minus monthly revenue. If you hold 30,000 dollars and burn 5,000 dollars a month net, you have six months of runway. This simple version assumes flat revenue; if your revenue is growing, a month by month projection gives a more accurate answer.

Question 2

What is a good burn rate for a startup?

Accepted Answer

There is no universal number, because burn rate only means something relative to your cash and your growth. The practical test is runway: most founders aim to keep at least six months of runway at all times, and to start raising or cutting costs before dropping below that.

Question 3

What does default alive or default dead mean?

Accepted Answer

The term comes from Paul Graham. A company is default alive if its current revenue growth would carry it to profitability before the money runs out, and default dead if it would not. It is the single most useful question a founder can ask, because it turns a vague worry about cash into a yes or no answer.

Question 4

What is the difference between gross burn and net burn?

Accepted Answer

Gross burn is everything going out: your total monthly expenses. Net burn subtracts the revenue coming in, so it reflects what your cash balance actually loses each month. Runway is always calculated on net burn.

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