Runway

Runway is the amount of time a startup is funded before having to begin making profits.

Runway is an important concept for startup founders to understand. It is the amount of time the startup has to get up and running and become profitable before it runs out of funds. Startups usually get their initial funding from investors, and this funding is to cover operational costs and startup expenses until the business is able to generate profits from customers. Runway is typically estimated in months and is an indication of how long the startup has to reach the desired milestones, with the most important one being profitability.

Runway can come from many sources including grants, angel investors, venture capital (VC) firms, and bank loans. It is important for startups to understand where they are in their Runway, because at different stages in the business, different sources of Runway may be more suitable.

When evaluating investments, VCs typically look at the runway timeline, since the longer the runway, the more time the startup has for experimentation and learning. Generally, the shorter the runway is, the more expensive it becomes to raise capital, as investors will be more likely to demand higher returns for shorter-term investments.

For example, if a startup is launching a new product or service, there would be certain associated costs such as training, marketing, and customer onboarding. Before getting revenue from customers, the startup needs enough money to cover these costs for the desired timeline. Let's say the estimated cost for the launch is $25,000, and the estimated launch timeline is 8 months. In this case, the runway needed for the startup would be 8 months, with the amount of $25,000. Now the founders will need to figure out where to get the money for the launch and make sure the timeline is suitable for the product or service launch.