"Runway" is a term commonly used in the context of startups and refers to the amount of time a company has before it runs out of cash, assuming current income and expenses stay constant. It's often expressed in months and calculated by dividing the company's cash balance by its monthly burn rate (the rate at which it spends its cash reserves).
A longer runway indicates that the company has more time to achieve its goals, such as reaching profitability or securing additional funding, before it exhausts its cash reserves. Conversely, a shorter runway suggests an urgent need for the company to either reduce costs, increase revenues, or secure additional funding to avoid running out of cash.
Given its importance, runway is a key metric that both entrepreneurs and investors closely monitor. For investors, it provides an indication of the company's financial health and its need for additional capital. For the management team, it helps in making informed business decisions and planning ahead.
