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How is runway in months calculated for a startup?

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May 03, 2023
How is runway in months calculated for a startup?
2 answers
Community Member
Accepted Answer
May 03, 2023
Generally speaking, runway is measured as how long the company can operate without a cash infusion at a steady state or with growth. If the startup can only last two weeks without a cash infusion, then their runway is two weeks. With respect to waiting until someone pays a bill “in a month,” there is a lot of unknowns. This would need to be diligenced before accepting as a fact. Many customers pay late. Not everyone renews licenses, etc. You may need to bridge the company to the revenues with some padding. If 100% of the customers paid on time and the full amount, what would their runway be? What would rehearsal runway be if 50% paid? Generally, when you bridge a company you take special offerings, like warrant coverage, and you may do it in a less friendly vehicle, like convertible debt. It can also be done at the last round valuation. Proceed with caution, as a bridge to nowhere becomes piers, and this has happens quite a bit. You need to make a bridge with real conviction.
Accepted Answer
Mar 04, 2024
The Taylor Davidson Runway Budgeting Tool can help plan.
As an investor, you're looking for this investment to bring the company to a significant milestone where next round investors will be motivated to invest. Investment usually takes longer than planned, so having next-round conversations earlier and lining up those investors is a key value of pre-seed/seed stage VCs.

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