Default alive

Default alive is the question Paul Graham popularized: on your current trajectory — without assuming a future fundraise — do you reach profitability before cash runs out? It is not "profitable today." It is "the trajectory clears the fuse."

Default dead companies often look fine in a boom because everyone assumes the next round arrives. When the window closes, they hit the fatal pinch: need money urgently, investors smell desperation, terms get ugly or disappear.

Walking through a sketch

Cash $2.4M. Monthly gross burn $200k, held flat. Revenue (cash-ish) $40k this month, growing 10% month-over-month.

Net burn each month = 200k − revenue. Break-even when revenue ≥ $200k.

40 × (1.10)^n = 200
(1.10)^n = 5
n ≈ ln(5) / ln(1.10) ≈ 1.609 / 0.0953 ≈ 16.9 months

Cumulative cash consumed is the sum of (200k − rev_t) until break-even. Sum it in a sheet. Suppose the sum of deficits ≈ $1.9M. Cash $2.4M > $1.9M → default alive with about $0.5M cushion.

If month-over-month growth is only 5%, time-to-breakeven roughly doubles and the cumulative deficit can exceed $2.4M → default dead.

Growth-rate assumptions are the lie people tell themselves. Audit whether recent growth will continue without proportional spend.

A second example: cash $1.2M, net burn $150k/month → 8 months of runway. Revenue $50k/month growing 5% MoM. Gross burn ≈ $200k.

50 × 1.05^n = 200
1.05^n = 4
n ≈ ln(4) / ln(1.05) ≈ 28 months

Cumulative deficit over 28 months far exceeds $1.2M → default dead, even though 8 months of runway looks "fine." The fix lives on extending runway.

Common mistakes

• Confusing runway with default alive. Fourteen months of runway can still be default dead if growth cannot catch a high burn.
• Assuming the next round. That assumption is what default alive exists to strip out.
• Using a heroic growth rate. If you have to invent 15% MoM to clear the test, you are default dead.

Check yourself

Cash $2.4M, flat $200k gross burn, $40k revenue growing 10% MoM. Break-even in ~17 months, cumulative deficit ~$1.9M. Alive or dead?

Default alive — the deficit fits inside the cash, with about $0.5M cushion.

You have 14 months of runway at today's burn. Why might you still be default dead?

If revenue cannot catch expenses before the cash is gone, the trajectory fails even though today's fuse looks long.

Key takeaways

• Default alive means the trajectory reaches profitability before cash zero, with no raise assumed.
• Runway is a snapshot. Default alive is a path.
• Growth-rate honesty is the whole test. Audit whether spend must rise with revenue.
• Say the words in the board letter: alive or dead, under which growth assumption.

Further learning

Next, levers to extend runway.