Burn, runway and default alive

Startups die when the bank account hits zero before the business can sustain itself. Burn and runway measure that fuse. Default alive is the sharper question: on your current trajectory — without assuming a future raise — do you reach profitability before cash runs out?

Engineers feel this as hiring freezes and "ship revenue features." Boards feel it as the only slide that matters in a downturn. Compute it yourself.

If you spend $400k and collect $150k, net burn is $250k. With $2.0M in the bank, runway ≈ 8 months. Use a trailing three-month average: one-time insurance, legal bills or a prepaid cloud invoice will lie. That snapshot is still not the whole test. A company can have 14 months of runway and still be default dead if revenue cannot catch expenses in time.

Gross burn  ≈ cash out this month
Net burn    ≈ gross burn − collections
Runway      ≈ cash / net burn

Concepts in this section

Investors also ask how much growth the burn bought. Burn multiple ≈ net burn / net new ARR. Under ~1× is efficient; much higher means you are paying dearly for each ARR dollar. Details live in efficiency metrics. Here the takeaway is: cut burn without killing the efficient growth engine.

Ramen profitable is the early milestone: the company covers the founders' modest living costs. It is not venture-scale profit. It is optionality — a team that can wait for the right round instead of taking a bad one.

The fatal pinch is the opposite: you need money urgently, investors smell it, and terms get ugly. Target 18–24 months of runway after a round. Start the process at 9–12+ months. If you are already under a year, become default alive first, then raise.

Your financial model should spit out cash, burn, runway and a default-alive flag under base and downside cases. Recompute after every material hire plan.

Common mistakes

• Using one month of burn. Average the last three. Watch annual-prepay distortion — see cash flow.
• Confusing runway with default alive. A long fuse with a hopeless trajectory is still default dead.
• Starting a raise at 4 months. Process takes 3–6 months. You will be raising from the pinch.

Key takeaways

• Runway ≈ cash / net burn. Use trailing averages.
• Default alive means the trajectory reaches profitability before cash zero, with no raise assumed.
• Primary levers: hiring pace, pricing, collections, then cost cuts.
• Plan 18–24 months post-round. Start process before the fatal pinch.
• Ramen profitability buys time even when you are not yet venture-scale profitable.

Further learning