Model gross burn, net burn, runway in months, and whether growth makes you default alive before the cash runs out.
Gross burn = Total monthly operating expenses. Net burn = Gross burn − Monthly revenue. Runway = Cash balance ÷ Net burn. Burn multiple = Net burn ÷ Net new ARR.
$1.2M in the bank, $180,000/month expenses and $95,000 MRR gives a net burn of $85,000 and 14.1 months of runway. If MRR grows 8% a month, net burn hits zero in about month 9 — the company is default alive.
Gross burn is everything you spend each month. Net burn subtracts revenue and is the number that determines runway. Investors ask for both because a high gross burn with high revenue is a very different risk than the same burn with none.
18–24 months after a raise is the standard target. Start the next fundraise at 12 months of runway — a round typically takes 3–6 months to close, and negotiating below 6 months of cash destroys your leverage.
Paul Graham's test: at your current growth rate and burn, do you reach profitability before the money runs out? If yes, you're default alive and fundraising is optional rather than existential.
David Sacks' benchmark: net burn ÷ net new ARR. Under 1x is exceptional, 1–1.5x is great, 1.5–2x is good, 2–3x is suspect, and above 3x is bad. It measures how much you spend to buy a dollar of recurring revenue.
It flatters cash burn without changing accrual economics. Annual contracts pull 12 months of cash forward, which can make runway look far healthier than the underlying monthly business — model both views.
Headcount is typically 70–80% of SaaS opex, so pausing hiring extends runway more than any other lever. After that: renegotiate cloud commits, cut unused SaaS seats, and shift paid acquisition spend into payback periods under 12 months.