What Is Your Cash Runway?

Now that you know what is your cash burn rate, you may understand this post’s question.

Your Cash Runway is the amount of time your startup has before its cash balance turns into negative.

For example, if your startup’s cash balance is being reduced by $5,000 per month, and you have $20,000 as available cash, in 4 months your startup will be out of money.

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What Is Your Cash Burn Rate?

In this very beginning, the Cash Burn Rate is certainly one of the core financial metrics you have to keep in mind, all the time.

Okay, but what is it?

Well, basically, there are 2 different burn rates:

  • Gross Burn Rate: It’s the average amount of money monthly consumed to pay for your startup’s activities. In other words, it is how much money you are spending per month to pay for things like salaries, rent, energy, marketing, development, services, etc.
  • Net Burn Rate: It’s the average amount of money your cash is being reduced per month. For this metric, you’ll consider not only your expenses, but any revenues that you might have too.
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How Much Money Does Your Startup Need To Generate Traction?

Certainly, this is the kind of question you need to answer in order to improve your startup’s chances of success.

While the lack of cash means the end of your startup’s activities, raising too much money may force you into unnecessary sacrifices—delivering too much equity to investors, accepting unfavorable terms, etc.

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