Investors read a startup update for three answers: how fast revenue is growing, how long the cash lasts, and how much cash it costs to grow. Runway, burn multiple and the default-alive test are the three numbers that answer them. Here they are worked on four months of figures.
| Month | MRR | Cash in bank |
|---|---|---|
| June | $20,000 | $400,000 |
| July | $22,000 | $380,000 |
| August | $24,200 | $355,000 |
| September | $26,600 | $325,000 |
Net burn is the cash lost in a month. July lost $20,000, August $25,000 and September $30,000. The average of the last three months is $25,000 a month.
Runway is cash divided by net burn: $325,000 ÷ $25,000 = 13.0 months, so the cash lasts until about October 2027.
MRR grew by $2,400 in September, which is $28,800 of net new annual recurring revenue. September's burn of $30,000 ÷ $28,800 = 1.04. Between 1 and 1.5 is usually called great: the company spends about a dollar to add a dollar of recurring revenue.
MRR grew at a compound rate of +10.0% a month over the last three months. Hold expenses flat at today's level (MRR of $26,600 plus $25,000 of burn is $51,600 a month) and keep growing at that rate, and revenue overtakes expenses in about 7 months, around April 2027, well inside the 13 months of cash. The company is default alive. It would stay alive with growth of only 2.8% a month.
Divide net burn for the month by net new annual recurring revenue, which is net new MRR times twelve. $30,000 of burn against $2,400 of net new MRR is $30,000 divided by $28,800, a burn multiple of 1.04.
A company is default alive if, at its current growth rate and with expenses held flat, its revenue overtakes its expenses before the cash runs out. The idea comes from Paul Graham's essay of the same name.
One month of burn can be distorted by an annual prepayment, a large invoice or a one-off purchase. Averaging the last three months gives a steadier runway figure.