Runway

Runway is the estimated timeframe a startup has before depleting its cash resources, assuming revenues and expenses remain constant or follow a predefined projection. The technical calculation of Runway is performed by dividing the current cash balance by the Net Monthly Burn Rate. This metric is one of the pillars of strategic planning, as it defines the deadline for the company to reach break-even, become profitable, or close a new funding round. A reduced Runway limits the startup's bargaining power with Venture Capital funds, as the proximity of insolvency increases perceived risk. Financial managers use this indicator to determine the “point of no return” for initiating fundraising efforts, considering that the investment cycle can last several months.

Practical Example: Using the previous startup scenario, which has R$ 1,000,000 in cash and a Net Burn Rate of R$ 100,000 per month, the Runway is exactly 10 months (R$ 1,000,000 / R$ 100,000). If the founders decide to double the investment in marketing to accelerate growth, increasing the Net Burn Rate to R$ 250,000, the Runway will immediately drop to 4 months. With this information, the board understands that the new growth strategy requires financial returns to occur within a very short timeframe, or that the company already be in advanced discussions with investors to secure new capital before the end of the fourth month.

Watch the movie “”The Social Network" — clearly illustrates the period when the company grows without revenue, surviving only on injected capital.