How burn rate and runway work
Startups quote two burn numbers, and investors ask for both.Gross burn is total monthly spend — payroll, rent, servers, everything going out the door. Net burn subtracts revenue and is what the bank balance actually loses each month. The distinction matters: gross burn measures the cost base you could cut in an emergency, while net burn sets the clock. The classic runway formula — cash divided by net burn — is exactly right only when nothing is growing. The moment revenue compounds month over month (or expenses creep), the honest answer comes from simulating each month forward, which is what this calculator does for up to ten years.
The formulas
Net burn = monthly expenses − monthly revenue
Runway (zero growth) = cash ÷ net burn
With growth: cashₜ = cashₜ₋₁ − (expensesₜ − revenueₜ)
In the simulation, revenue and expenses each compound monthly at their own growth rates; runway is the month cash crosses zero (interpolated within the month) andbreakeven is the first month revenue meets or exceeds expenses, checked over a 120-month horizon. If breakeven arrives before the cash runs out, the plan is default alive.
Worked example
Take the default scenario: $500,000 in the bank, $60,000 of monthly expenses growing 2% a month, and $25,000 of monthly revenue growing 8% a month:
| Step | Amount |
|---|---|
| Cash in the bankthe starting balance the burn draws down | $500,000 |
| Gross burn (monthly expenses)everything going out each month, before counting revenue | $60,000 |
| − Monthly revenue | $25,000 |
| = Net burn$60,000 − $25,000 — what the bank balance actually loses each month | $35,000/mo |
| Cash ÷ net burn = zero-growth runway$500,000 ÷ $35,000 — the classic formula, true only if nothing grows | 14.3 months |
| Growth simulation: revenue +8%/mo, expenses +2%/mocash bottoms out at $139,750 in month 16, then turns back up | breakeven in month 17 |
| = Verdict: default aliverevenue passes expenses in month 17, before the cash runs out — this plan funds itself | Default alive |
Computed with this calculator's default settings — open the tool above and you'll see the same numbers, then swap in your own cash, burn, and growth figures.
Default alive, default dead, and when to raise
In his 2015 essay "Default Alive or Default Dead?", Paul Graham argues that the first question about any startup’s finances is not how much cash it has but which way the simulation points: holding expenses roughly constant and letting revenue keep growing at its current rate, does the company become profitable before the money runs out? A default-alive company can raise on its own terms or skip raising entirely; a default-dead company is negotiating against a deadline, whether it admits it or not. The worked example above shows why the naive formula misleads — cash ÷ net burn says 14.3months, yet with growth the same company never runs out at all. The common fundraising convention follows from the same clock: start raising while at least six months of runway remain, because rounds take months to close and everyone can see your cash-out date. That is a convention founders plan around, not advice for any particular company.
Runway math connects directly to the rest of your unit economics: find the sales volume where revenue covers costs with thebreak-even point calculator, check what each new customer costs with thecustomer acquisition cost calculator, and test whether those customers repay that cost with thecustomer lifetime value calculator.
Frequently asked questions
What is burn rate?
Burn rate is the speed at which a company spends its cash reserves, quoted per month. A startup spending $60,000 a month has a burn rate of $60,000 — and if it earns $25,000 that same month, its net burn is $35,000. The term matters most for venture-backed startups, which deliberately run at a loss to grow faster and finance the gap from raised capital. Burn rate converts a bank balance into the number founders actually care about: how many months of life are left before the company must reach breakeven, raise again, or shut down.
What is the difference between gross burn and net burn?
Gross burn is total monthly operating spend — payroll, rent, software, everything going out. Net burn subtracts monthly revenue, leaving what the bank balance actually loses. Investors ask for both because they answer different questions: gross burn measures the size of the cost base you would have to cut in a crisis, while net burn sets the clock, since runway is cash divided by net burn. A company with $100,000 gross burn and $90,000 of revenue has only $10,000 of net burn — and far more options than its spending alone would suggest.
How much runway is healthy?
A common convention among venture investors is to raise enough for 18 to 24 months of runway, and to start the next fundraise while at least six months remain — a round typically takes three to six months to close, and negotiating with a nearly empty bank account is weak footing. These are conventions, not rules: the right cushion depends on growth, market conditions, and how predictable the business is. What everyone agrees on is the failure mode — discovering you have three months of cash leaves few options beyond deep cuts or desperate terms.
What does "default alive" mean?
Default alive is Paul Graham’s test from his 2015 essay "Default Alive or Default Dead?": assuming expenses stay constant and revenue growth continues at its current rate, does the company reach profitability before the money runs out? If yes, it is default alive — it controls its own destiny and can raise money on its own terms, or not at all. If no, it is default dead: something has to change — faster growth, lower costs, or new funding — before the cash-out date. Graham’s point is that founders should know which side of the line they are on long before the answer becomes urgent.
How do I extend my runway?
There are only two levers: cut net burn or add cash. The two are not symmetric. Cutting expenses works immediately — a $10,000 monthly cut lengthens runway from the day it takes effect — while growing revenue compounds slowly and takes months to move the totals meaningfully. That asymmetry is why turnaround advice starts with costs, even at growth-obsessed startups: cuts are certain and instant, growth is neither. The strongest position is to do both early — modest cuts plus steady revenue growth can turn a default-dead plan into a default-alive one without raising at all.
Sources
The official figures this page quotes are drawn from the primary sources above — check them (or a qualified professional) before relying on a result.
Disclaimer: This calculator is foreducation and illustration only. It projects two smooth exponential curves, while real revenue and expenses are lumpy — hires land in steps, churn interrupts growth, and receivables lag bookings. Treat the result as a planning baseline, not a forecast, and nothing here is financial, fundraising, or investment advice.