Gross, net and the number that matters
Gross burn is total monthly cash out. Net burn subtracts cash collected. Runway is cash on hand divided by forward net burn — forward, not trailing, because hiring plans and contract step-ups are already committed.
A trailing three-month average understates burn for any company that just closed a round, since hiring lags the money by a quarter. Use the plan, then test the plan.
| Measure | Formula | Use |
|---|---|---|
| Gross burn | Total monthly cash out | Cost base sizing |
| Net burn | Cash out minus cash in | Runway input |
| Runway | Cash / forward net burn | Board and raise timing |
| Default alive | Runway to breakeven at current growth | Strategic optionality |
Three adjustments that change the answer
- Committed spend: signed offers, notice periods and annual contracts that renew inside the window.
- Collections reality: use cash collected, not invoiced revenue, especially with enterprise net-60 terms.
- Raise cost: assume the next round takes five to seven months of founder time and close the window accordingly.
What to ask for in diligence
Request a monthly cash statement for the last twelve months alongside the forward plan, and reconcile the two. A plan that assumes efficiency gains never observed in the trailing data is an assumption, and belongs in the risk register with its own probability.
For any company reporting more than eighteen months of runway, check whether that figure already includes planned hiring. It frequently does not.
The financing-risk link
Runway shorter than nine months at the point of investment converts every other risk into financing risk: the company loses the ability to say no. Price that explicitly rather than treating it as a footnote.
Part of a guide
Startup financials: unit economics, runway and valuation
A guide to the financial questions that decide early-stage outcomes: CAC, LTV and payback, burn rate and runway, how much runway to hold, and how pre-revenue companies get valued.