Burn Rate & Runway: How Long Until Default Alive?

Runway is your cash balance divided by monthly net burn: $2M in the bank at $100K net burn per month means 20 months of runway. But that number is only honest if your burn stays flat — and if you have a hiring plan, it won't, which is why most founders' runway estimates are wrong by a quarter or more.

This guide covers the difference between gross and net burn, Paul Graham's default alive test, a worked example showing exactly how a hiring plan quietly shreds a 17-month runway down to 14, and the point at which you should start a raise. If you want to skip ahead and stress-test your own numbers, the burn rate and runway calculator does the arithmetic — including a hiring-plan scenario.

Gross burn vs net burn: which one is your runway?

Two numbers, two jobs:

• Gross burn = total monthly cash out the door. Payroll, rent, cloud, tools, contractors — everything. This is your cost structure.
• Net burn = gross burn minus cash revenue. This is what your bank balance actually loses each month, and it's the number runway is built on: Runway = cash ÷ net burn.

Use net burn for runway. Use gross burn for risk. The gap matters because revenue can churn but payroll can't — a company with $200K gross burn and $150K revenue has the same $50K net burn as one with $60K gross and $10K revenue, but wildly different downside if a big customer walks. When someone quotes you their runway, ask which burn they used. If they don't know, the answer is probably neither.

One more wrinkle: cash revenue, not booked revenue

Net burn is a cash metric. Annual prepay collected in January makes your Q1 net burn look heroic and your Q3 look terrible, even if MRR never moved. Smooth it: compute net burn as a trailing 3-month average of actual bank-balance change, and sanity-check it against MRR so a lumpy invoice doesn't fool you into thinking you fixed your cost structure.

Default alive or default dead?

Paul Graham's question is sharper than "how much runway do we have?" It's: at your current growth rate and current expense trajectory, do you reach profitability before the money runs out? If yes, you're default alive — fundraising becomes optional, a tool for going faster. If no, you're default dead — you are betting the company on either a raise or a growth acceleration, and you should be able to say which one, out loud, to your team.

The mechanics: project revenue forward at your current growth rate, project expenses forward including committed hires, and find two dates — the month revenue crosses gross burn (breakeven) and the month cash hits zero. If breakeven comes first, default alive. If zero comes first, default dead.

Graham's observation, still true in 2026: most founders don't know which one they are, and the ones who are default dead usually find out too late — because static runway math told them they had plenty of time.

Worked example: how a hiring plan eats three months of runway

Say you're a seed-stage SaaS with:

• Cash: $1.8M
• Revenue: $75K MRR, growing 5% per month
• Gross burn: $180K/month
• Net burn: $180K − $75K = $105K/month

Naive runway: $1.8M ÷ $105K ≈ 17 months. Feels comfortable.

Now run the honest version. First, without any hires, revenue compounds: at 5% monthly growth, MRR crosses your $180K gross burn around month 19 — and because net burn shrinks every month on the way there, you arrive at breakeven with roughly $670K still in the bank. Naive math said 17 months; the real answer is "we never run out." You're default alive.

Now add the hiring plan every seed company has: four hires starting in month 3, at $15K/month fully loaded each (salary plus taxes, benefits, and equipment — budget 1.25–1.4× base salary, not base). Gross burn jumps from $180K to $240K.

• Cash hits zero in month 15 — two months earlier than the naive estimate, and the naive estimate didn't even include the new payroll.
• Breakeven moves to roughly month 25, because revenue now has to grow past $240K instead of $180K.
• Zero (month 15) now arrives before breakeven (month 25). Same company, same growth rate — you just flipped from default alive to default dead with four offer letters.

That's not an argument against hiring. It's an argument that every hire is implicitly a bet that they'll raise your growth rate above 5%/month by enough to pull breakeven back before month 15 — or that you'll raise money on the strength of that growth. Naive runway math hides the bet; a month-by-month projection makes it explicit. The calculator's hiring-plan scenario runs exactly this projection so you can see the flip before you sign the offers.

Where efficient companies sit in 2026

Burn has no universal benchmark — a pre-revenue deep-tech company and a bootstrapped SaaS shouldn't burn alike. What investors benchmark instead is what your burn buys. The efficiency metrics below are the ones that show up next to burn in every 2026 diligence deck. Figures are directional medians synthesized from public benchmark reports (SaaS Capital, Benchmarkit/KeyBanc, Bessemer, OpenView) — sources vary, so treat them as orientation, not gospel. Full detail on the benchmarks page.

Efficiency metric	Seed	Series A	Series B+	Healthy line
Rule of 40 (growth % + margin %)	40%	40%	40%	≥ 40% passes
Magic Number (new ARR per S&M dollar)	0.7	0.75	0.8	≥ 0.75 efficient; < 0.5 reassess
SaaS Quick Ratio (gains ÷ losses in MRR)	4	3	2	≥ 4 excellent; > 1 means net growth
CAC Payback (months)	15	15	18	< 12 healthy for SMB; enterprise runs 18–24

The translation to burn: if your Magic Number is above 0.75, high burn is defensible — each dollar of go-to-market spend returns efficiently and burning harder buys growth. Below 0.5, your burn is subsidizing a broken motion, and cutting it costs less growth than you fear. Similarly, a company clearing the Rule of 40 with negative margins is at least burning in exchange for growth; one failing it is burning for nothing.

When to raise

Three rules, in priority order:

1. Start at 12 months of runway, not 6

A priced round realistically takes 3–6 months from first partner meeting to money in the bank. If you start the process at 6 months of runway, you'll be negotiating your final term sheet at 2 — and every investor across the table can count. Desperation is visible and it reprices your round. Start conversations around 12 months, aim to close by 9.

2. Raise on a slope, not a level

Investors fund trajectories. The best moment to raise is when your last two quarters show accelerating growth or improving efficiency — even if your absolute numbers are modest. If you're default alive, you can time the raise to your best quarter. If you're default dead, the clock picks the timing for you, which is precisely why default-dead companies raise on worse terms.

3. Know your walk-away plan before the first meeting

If you're default alive, your walk-away is "we keep growing and raise later or never" — the strongest negotiating position in venture. If you're default dead, your walk-away is a cut plan that gets you to default alive: know exactly which costs go and when, and be genuinely willing to execute it. A raise you must close isn't a negotiation.

Common mistakes

• Dividing by last month's net burn. One month is noise — an annual prepay, a one-time refund, a triple payroll month. Use a trailing 3-month average of actual cash-balance change.
• Treating runway as static. Runway is a projection, not a division. Committed hires, contract renewals, and price increases on your vendor stack all belong in the forward months.
• Counting signed-but-uncollected revenue as cash. A closed-won annual contract is not runway until the wire lands. Model collections, not bookings.
• Budgeting hires at base salary. Fully loaded cost runs 1.25–1.4× base once you add payroll taxes, benefits, and equipment. Four "$120K" engineers are a ~$56K/month line item, not $40K.
• Using net burn while ignoring concentration risk. If one customer is 30% of revenue, your true runway sits somewhere between the net-burn and gross-burn figures. Model both.
• Assuming today's growth rate is a constant. Growth decays as the base grows. If your default-alive verdict only holds at an optimistic growth rate, you're default dead with extra steps.
• Forgetting that cuts have costs. Severance, notice periods, and cancellation fees mean a cost cut takes 1–3 months to show up in net burn. A rescue plan that starts at 3 months of runway executes at 1.

Run your own numbers

The whole point of the default-alive framing is that you can answer it in twenty minutes with a spreadsheet — or two minutes with a calculator built for it. Plug your cash, revenue, growth rate, and expenses into the Burn Rate & Runway Calculator, add your hiring plan, and see whether breakeven or zero comes first. If the answer is zero, you now know your real deadline — and it's earlier than the naive math told you.