How to Calculate Runway, Burn Rate, and Default Alive

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Burn rate is how much cash a company actually consumes in a month. Gross burn is your total monthly spend; net burn is what's left after subtracting revenue — the actual cash consumption. When an investor asks about “burn rate,” they almost always mean net burn.

The formula is simple: Net burn = total monthly spend − monthly revenue. If monthly spend is ₩20M and monthly revenue is ₩5M, net burn is ₩15M — the amount that actually leaves your bank account every month.

At early-stage startups, personnel costs often make up 60–70% of burn rate. The first step is knowing, in hard numbers, how much a single new hire adds to your burn. Before you can judge whether “our burn rate is reasonable,” you need the habit of measuring it precisely.

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Runway is your current cash balance divided by net burn, expressed in months. Runway = current cash balance ÷ net burn. Applying the example above directly: with ₩90M in cash and a ₩15M net burn, runway is 6 months.

A 6-month runway is a red flag. Fundraising typically takes 4–7 months, so if you're taking your first meeting at the 6-month mark, you've already lost negotiating leverage. The generally recommended benchmark is 18+ months; below 12 months, you need to either cut burn or seriously reconsider your fundraising timeline.

There are a few items people commonly leave out of runway calculations: VAT and interim corporate-tax prepayments, annual software subscriptions, and unexpected refunds or cancellations. Calculate your average monthly spend based on the trailing 3 months of actuals, but make sure irregular expenses are converted to a monthly average and folded in — otherwise the math doesn't hold up.

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Default alive is a diagnostic concept Paul Graham introduced in 2015. It asks whether, with no additional investment, maintaining your current growth rate and burn rate would let you reach breakeven. The opposite is default dead — where, without additional funding, you'll run out of cash first.

The calculation breaks into three steps. First, determine your current monthly revenue growth rate. Second, assuming that growth rate holds, estimate the point at which revenue overtakes total monthly spend. Third: if that point falls within your current runway, you're default alive; if it exceeds your runway, you're default dead.

Whether you're default alive changes the shape of the fundraising negotiation itself. A founder who isn't desperate for cash gets to choose their terms. Sitting down at the table while default dead reads as desperation, and both valuation and terms end up worse.

One caveat: this calculation rests on the assumption that your revenue growth rate stays constant. If growth slows or a key customer churns, the outcome changes. Your default-alive number is a diagnostic tool for your current state — not a guarantee about the future.

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Run through the checklist below at the end of every month, or before an investor meeting. You should be able to check off every item without hesitation. If even one comes back “I don't know,” sort out that number first.

1. You've broken down last month's gross burn (total monthly spend) by category.
2. You've calculated last month's net burn (total spend − revenue).
3. You know your current bank balance (total cash and cash equivalents) precisely.
4. You've calculated runway (cash balance ÷ net burn) in months.
5. You've calculated your average monthly revenue growth rate over the trailing 3 months.
6. You've estimated the month you'd hit breakeven if that growth rate holds.
7. You've checked whether that breakeven point falls within your runway (i.e., whether you're default alive).
8. You've converted irregular expenses (taxes, annual subscriptions, etc.) to a monthly average and folded them into burn rate.
9. If runway is under 12 months, you've revisited either cutting burn or your fundraising timeline.
10. You've packaged all three numbers in a form ready to drop into your IR materials or business plan.

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Q. Should the founder's salary be included in burn rate? Yes, it should. Excluding it makes your burn rate look lower than it actually is. Investors evaluate the number that includes founder salary. If the founder isn't taking a salary, just state that fact separately.

Q. If we're receiving a government grant, how does that factor into the runway calculation? Include it in your cash balance at the point you receive it. That said, grant funding often comes with restrictions on how it can be spent, so it's not always freely usable. It's more accurate to flag restricted-use funds separately in your runway calculation. Presenting “free cash” and “restricted cash” separately to investors builds credibility.

Q. If we don't have revenue yet, is calculating default alive even meaningful? With no revenue, you're automatically default dead. At this stage, the numbers that matter are runway and burn rate. Once you have your first revenue and growth-rate data starts accumulating, you can calculate a breakeven estimate. Pre-revenue, securing 18 months of runway should be the top priority.

Q. If an investor tells me to cut burn rate, do I have to just go along with it? Cutting burn rate and investing in growth are a trade-off. Cutting marketing spend or hiring lowers burn rate, but growth rate may drop right along with it. What matters is simulating, in numbers, how a burn-rate cut affects growth rate. Compare the two scenarios and decide from there — don't decide on instinct.

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Burn rate, runway, and default alive aren't textbook finance concepts. They're numbers that come up again and again in your business plan's funding-requirements section, your IR deck's financial-status slide, and investor Q&A. The gap between a founder who can state these numbers instantly and one who can't shows up in the very first meeting.

In your business plan, your funding-requirements table should spell out monthly spend by category and the total, and connect the point at which grant funding runs out to your subsequent self-sufficiency plan. Reviewers want to see, in concrete numbers, exactly how and until when this team plans to spend money. Monthly figures build more trust than abstract language.

In an IR deck, it's efficient to present burn rate and runway together on a single slide. Stating your default-alive status explicitly reduces follow-up questions from investors. If a figure rests on an assumption, it's worth stating that assumption alongside it — a number with a transparent assumption builds more trust than one with no stated basis at all.

If it's hard to judge for yourself whether these three numbers are placed well in your business plan or IR materials, and whether the underlying basis is solid enough, an outside perspective helps. OpenSeed reviews the entire business plan — including the consistency and logic of your financial figures — through the lens of 15 reviewer avatars.