Runway
Definition
The number of months a company can continue operating at its current burn rate before running out of cash. Runway is calculated as current cash balance divided by monthly burn rate and is the most critical survival metric for pre-profit businesses. In intangible-rich startups, runway calculations must account for the ongoing investment required to develop and protect intellectual property, build brand awareness, and establish customer relationships before revenue becomes self-sustaining.
Complementary Terms
Concepts that frequently appear alongside Runway in practice.
The rate at which a company spends cash in excess of its income, typically expressed as a monthly figure. Burn rate is a critical metric for startups and growth-stage companies, directly determining how long the business can operate before requiring additional capital (runway).
A measure of how much capital is required to generate a unit of revenue, calculated as total assets divided by total revenue. Companies with high intangible asset bases may report misleadingly low capital intensity because many intangible investments are expensed rather than capitalised on the balance sheet.
The net asset value of a company as recorded on its balance sheet, calculated as total assets minus total liabilities. Book value often significantly understates the true worth of intangible-rich businesses because many intangible assets are not recognised under accounting standards.
The amount of output produced per unit of labour input, commonly measured as gross value added (GVA) divided by labour costs or number of employees. Labour productivity is a key efficiency metric that reflects the quality of human capital, processes, and technology deployed by a firm.
The annualised rate of return that smooths out growth over multiple years, calculated as (ending value / beginning value)^(1/years) minus one. CAGR is used to compare growth trajectories of companies or metrics across different time periods.
A dividend discount model that values a perpetual stream of cash flows growing at a constant rate, calculated as the next period's cash flow divided by the difference between the discount rate and the growth rate. The Gordon growth model is widely used to estimate terminal value in discounted cash flow analyses and requires that the assumed growth rate remains below the discount rate.
The annualised value of recurring subscription revenue. ARR is the primary top-line metric for SaaS and subscription businesses, providing a normalised view of predictable revenue that strips out one-time fees and variable charges.
A productivity metric that evaluates the output, revenue, or value generated relative to the number of employees. Headcount efficiency is a key performance indicator for scaling businesses and investors, revealing whether growth in intangible assets such as technology and process automation is translating into leverage across the workforce.
Related FAQ
What are realistic burn rates and how do you avoid misrepresenting runway?
Founders often calculate optimistic runway (assuming perfect cost control) when actual burn is higher. Honest runway = (cash on hand) / (conservative monthly burn + 3-month buffer).
Read full answer →Burn rate is monthly cash spending; runway is current cash divided by monthly burn rate, indicating how many months until capital runs out.
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