What are realistic burn rates and how do you avoid misrepresenting runway?
Short Answer
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).
Full Explanation
Founder says "We have 18 months of runway." Calculation: £500K cash / £27K monthly burn. Reality: monthly burn is actually £40K when you include contractor costs, recruitment buffer, and contingency. Actual runway: 12 months. Investors discover this in diligence and lose trust. Honest burn rate calculation: include all cash outflows—salaries, rent, software, contractor overhead, recruitment costs, legal, accounting, and a 20% contingency for surprises. Conservative approach: "We have £500K cash. Conservative burn (including 20% contingency) is £38K/month. Runway is £500K / £38K = 13 months." This is credible. When presenting runway, also disclose: (1) cost levers if growth slows (which discretionary costs can you cut?), (2) path to breakeven (what growth rate / efficiency improvements get you there?), (3) fundraising timeline (when will you need next round?). Investors respect founders who understand burn deeply and have clear plans to extend runway. Misrepresenting runway (optimistic burn, hidden costs, unrealistic growth assumptions) signals either naivety or dishonesty—both lead to discount in valuation or deal rejection.
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Further Reading
The Burn Multiple: Why Capital Efficiency Is the New Growth
The burn multiple has replaced growth rate as the metric investors scrutinise most. This guide explains the formula, stage-specific benchmarks, and why every dollar of burn should be creating an intangible asset that compounds in value.
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