Investments / Start-ups
What is "burn rate" and "runway"
in the world of startups?
When you are running a startup, a scaleup or being asked to invest in such a company there are some key concepts to understand. Here is a short 1o1 on what runway and burn rate is in the world of start-ups.
What is the burn rate?
Imagine that you have an investment of 1 million SEK. And, as is typicall with a startup, you are not profitable. You are not even break even. That means that you have a negative result each month. Say its 100 000 SEK per month.
Then that is your burn rate, you burn 100k per month.
What is you runway?
With that burn rate – how long will it take before you have used up all of the investment of 1 million SEK? Before you are out of cash and either will crash and burn, take off or get more investment capital.
You take the monthly burn rate divided per the investment.
100 000 SEK / 1000 000 =10. So your runway is 10 months.
Key take aways
As a key take away its good to keep in mind that the burn rate and runway discussion is a prognosis – that means that unexpected things can happen that will shift the burn rate and shorten or lengthen the runway.
So if you are the fundraising startup it is good to keep margins so that you´re not fundraising with to short a runway, that may both work to drive investors away and it may put you in a more desperate situation need it except a lower valuation and other unfavorable terms.
Author; Kat Strandberg
London, 2024-05-27
What is the burn rate?
Imagine that you have an investment of 1 million SEK. And, as is typicall with a startup, you are not profitable. You are not even break even. That means that you have a negative result each month. Say its 100 000 SEK per month.
Then that is your burn rate, you burn 100k per month.
What is you runway?
With that burn rate – how long will it take before you have used up all of the investment of 1 million SEK? Before you are out of cash and either will crash and burn, take off or get more investment capital.
You take the monthly burn rate divided per the investment.
100 000 SEK / 1000 000 =10. So your runway is 10 months.
Key take aways
As a key take away its good to keep in mind that the burn rate and runway discussion is a prognosis – that means that unexpected things can happen that will shift the burn rate and shorten or lengthen the runway.
So if you are the fundraising startup it is good to keep margins so that you´re not fundraising with to short a runway, that may both work to drive investors away and it may put you in a more desperate situation need it except a lower valuation and other unfavorable terms.
Author; Kat Strandberg
London, 2024-05-27