What is burn rate and runway?

Full Explanation

If a company has £500K cash and spends £50K monthly, burn rate is £50K and runway is 10 months. Runway is the single most important metric for founders because it determines the time window to reach profitability, raise capital, or reach milestones that attract capital. For VC-backed companies, runway targets typically range from 12-18 months (enough time to reach Series A milestones and raise the next round). Many founders underestimate burn — they forget to include stock-based compensation, accounting, legal, recruitment, and other non-obvious costs. Cash burn is distinct from accounting loss (burn includes all cash outflows; loss may include non-cash charges like depreciation). The pace of burn rate is also critical: a company burning £50K monthly with flat revenue is in a different position than one burning £50K monthly but with £100K monthly revenue. Understanding the unit economics (LTV:CAC, payback period) shows whether burn is productive (acquiring customers that will generate returns) or wasteful. For investors, runway indicates covenant risk: a company with 3 months of runway is in crisis and will accept unfavourable terms; one with 18 months can negotiate from strength.

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