How Much Runway Should a Startup Have?

The first factor to consider is the stage of your startup. There are several stages in total:

• Ideation: The beginning and the idea for the startup. The founder defines the problem they want to solve, the target market, and the value proposition of their solution.
• Validation: Where the idea is tested with potential customers, partners, and investors. The founder seeks feedback, conducts experiments, and builds a minimum viable product (MVP) to validate assumptions and hypotheses. The founder will also refine their business model and strategy based on the data and insights they gather.

Ideation and validation are considered “pre-seed” stages and are usually the point where investment is yet to be secured. Funding is achieved by using the founder’s savings or grants and the runway should be 6 – 12 months.

• Traction: The startup begins to generate revenue, acquire customers, and grow its user base. The focus is placed on scaling the product, marketing, and sales efforts, as well as raising funds from external sources. Typically, more team members are hired and the organization’s culture and vision are established.
• Scaling: The startup achieves product-market fit, meaning that it has a large and loyal customer base willing to pay for its solution. Market share is expanded and the product offering is diversified. Operations, processes, and systems are optimized to increase efficiency and profitability.

Traction and scaling are considered the “seed stages” and by now, investment will have been secured and provided. The runway for the seed stage should also be 6 – 12 months.

• Maturity: The startup is now an established company that dominates its industry or niche. There is a clear vision and mission for the future of the company, and long-term goals and opportunities are defined and pursued.

Maturity is the coveted “later” stage and it means your business is a success! But that does not mean you can rest on your laurels. A runway is still required and it should be longer than previous runways. In all, a later-stage startup should have 18 – 24 months of runway.

The second factor to consider is the burn rate of the startup. Burn rate is the amount of money that a startup spends per month to cover its expenses and is calculated by subtracting the revenue from the expenses. 

• A lower burn rate means that a startup can extend its runway and survive longer before it needs a new injection of cash.
• A higher burn rate means that a startup needs more funding and has less margin for error. 

The burn rate can be managed and adjusted as time goes on since you have an element of control over the money you spend. If you need to scale back your expenses to extend the burn rate, then you can search for ways to do this.

Overall, you should aim to keep the burn rate below 15% of your total funding.