Burn rate, runway, and "default alive" are the survival metrics every founder must know. Gross Burn = total monthly spending. Net Burn = spending minus revenue. Runway = cash / net burn. "Default Alive" (Paul Graham) = will you reach profitability before running out of cash at current growth and burn rates?
Net Burn Rate
Net Burn = Monthly OPEX + COGS - Monthly Revenue
Runway
Runway (months) = Cash Balance / Net Burn Rate
Key Takeaways
- Net Burn = Spending - Revenue. Runway = Cash / Net Burn.
- Start fundraising with 6+ months of runway.
- "Default Alive" = will you reach breakeven before cash runs out?
- If not default alive, either cut burn or raise money NOW.