How much runway* do you need? How much should you burn? Here’s an overview of what the best people in the business do, and what I expect to see as an investor.
Learning from Rahul
Rahul Vohra has built Superhuman into one of the hottest startups in America. On a recent episode of This Week in Startups, Rahul explained how he makes sure Superhuman never runs out of money:
“Every single quarter, we make sure that at that moment in time, we have 48 months of runway left.”
48 months might sound ridiculously conservative, but Rahul stands by it:
“Some people aim for 24, which, by the way, why 24? Guys, that’s not enough. You need more than 24 months of runway.”
Rahul has run Superhuman in an uncommon way. And he’s gotten uncommon results, building a unicorn in just 7 years.
How Much Runway I Want to See
I love Rahul’s approach. He might have left a little bit of growth on the table, but he’s mitigated one of the biggest risks to his company — running out of cash.
But of course, most startups don’t run this way.
When I’m looking at a deal, I want the company to have a minimum of 12 months runway once the current round closes. If it’s any less than that, I pass.
With under 12 months runway, the founder will have to turn around and start raising again almost immediately. It’s hard to run a company that way.
When to Raise
You want to start raising when you have at least 9 months of runway in the bank.
The raise could take 6 months. You want to make sure you still have some cash on hand at the end of that period.
Having lots of runway when you go out to raise gives you leverage with investors. You don’t have to accept just any terms.
If you can make it to breakeven before you start raising money, even better! You can always ramp up the burn again when you refill the gas tank.
Remember, investors don’t invest in startups that need money.
Wrap-Up
Always know your runway. Making sure you don’t run out of cash is one of your most important jobs as a founder.
Aim for a minimum of 12 months runway after a raise. And seriously consider Rahul’s conservative approach — it’s working for him!
If worse comes to worst and you do run out of money, your company can still survive. I’ve seen startups lay off everyone other than the founders and keep building.
I have enormous respect for entrepreneurs like that. But it’s easier not to go broke in the first place!
How much runway do you like to see?
*Runway: The amount of time your startup has until it has $0 in the bank, given its current burn rate and cash in bank. For example, if you’re burning $50,000 a month and you have $500,000 in the bank, you have 10 months runway.
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