What is your runway?

In startup world, ‘runway’ translates into how long your company can survive if your income and expenses remain the same. So if you are not generating any revenue and are burning $100k per month with $500k in the bank, your runway is 5 months. A simple concept, but there are some common mistakes to avoid.

18 months’ rule of thumb

Most businesses looking to raise capital in order to increase their runway should be looking to cover the next 18 months. The reason behind this time frame is to allow 12-15 months to achieve the milestones that will encourage further investment and growth, and 3-6 months to raise said investment. Sufficient runway is a major factor investors will look at for obvious reasons: too many businesses have failed, not because they did not have a great concept, product or market fit but simply because they ran out of runway.

The problem with too much(!) capital..

Many businesses fall into the trap of thinking there is no such thing as too much capital. If they have enough money in the bank to cover the next 2-3 years, that cannot ever be a bad thing, or so they think.

Wrong! This is the easiest way for a business to self-implode and it is all down to complacency. The more time a business has to achieve its growth targets, the less pressure there is to perform. This is where the perfectionists come out to play.

Speed-to-market is everything – this game leaves little room for months or even years spent working on perfecting a product. ‘Just because you have the runway to do so‘ could result in discovering there are no interested customers left – or there never were – but at least you could have failed fast!

Or too little..

It goes without saying that you also do not want to raise too little capital. If your runway is less than 18 months, you have not left enough wriggle room. If growth is slower than expected or you have to adjust your product or services to reach a better market fit, you will not have the leeway to experiment and adapt before you run out of cash.

Even if things go as planned, it is a hugely ambitious time frame to achieve significant growth before your next capital raise begins…

…Which leads us to our next point.

Capital raise time frame

Do not underestimate how long it takes to raise capital! If you have allowed yourself the full 18 months to achieve all your milestones, you will come to the end of your runway and then… nothing will happen.

You need to be running your business in parallel to your capital raising efforts, which can take anywhere between 3-6 months or even longer. You cannot expect to raise your next round of capital the day after your runway ends. Allocate a realistic amount of time to get the process started, so you can get on with growing your business!

2019-01-24T23:03:54+00:00January 20th, 2019|0 Comments

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