Runway, also known as start-up runway, is the amount of time that a start-up can continue operating in the market before it runs out of money, assuming that its income and expenses will remain constant during this time.
You can think of start-up runway a lot like an airport’s runway. There’s only a limited amount of room that an airplane can use. Once this runs out, it’s game over, much like it could be game over for a start-up that doesn’t have enough money to keep its operations running with.
Calculating Runway is relatively straightforward for start-ups that have at least a few months’ worth of income and expenditure figures behind them. Naturally, the more figures you’ve got (i.e., a few years’ worth vs a few months’ worth), the more accurate Runway calculations will be.
You can calculate it using this simplified formula:
Runway = current cash balance ÷ burn rate