Formulas
| Metric | Formula | Example |
|---|---|---|
| Gross burn | Total monthly cash spending | $130,000 |
| Net burn | Gross burn − cash collected | $130,000 − $50,000 = $80,000 |
| Runway | Cash ÷ net burn | $1.2M ÷ $80,000 = 15 months |
| Revenue run rate | Monthly revenue × 12 | $50,000 × 12 = $600,000 |
Why the difference matters
Burn rate tells a board how long the company can survive and when it must raise. Run rate tells investors the current scale of revenue. A company can have a growing run rate and a worsening burn at the same time, if each new customer costs more to win than it brings in.
Mistakes investors look for
- Run rate built from a single unusually large month or one-off fees.
- Revenue run rate presented as ARR when much of it is not recurring.
- Burn averaged over past months while committed hires are ignored.
- Runway calculated on invoiced revenue when customers pay late.
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.