Every month we focus on a specific term or expression from the startup world, that might need some explaining. This time, we ‘d like to talk about the runway of a young business.
What’s a runway?
Yeah, we know what you’re thinking: “Off course I know what a runway is! It’s the thing where Doutzen Kroes shows all those designer outfits”. True, but that’s not the kind of runway we’re were thinking of.
In the world of startups, the runway is the time a startup has left, before it runs out of capital. So, when a startup has a runway of six months, it means they have six months left until they will need new funds. The longer your runway is, the healthier your startup is financially.
To calculate your runway, you need to take your beginning cash balance and divide it by your monthly burn rate (the amount you spend every month). Let’s say your startup has € 100.000 in cash and your burn rate is € 5.000 a month. That would mean your runway is 20 months.