Runway math decides whether a startup survives on its own

The record

In an October 2015 essay, Y Combinator co-founder Paul Graham set out a test for a startup operating more than eight or nine months: assuming expenses stay constant and revenue growth continues at its recent rate, does the company reach profitability on the money it has left? Graham calls a company that clears this test 'default alive' and one that does not 'default dead.' The essay gives no formula; it points to a calculator built by Trevor Blackwell taking cash, burn, revenue and growth rate as inputs. Graham's central claim is behavioral: many founders never run the calculation, so they do not know which side of the line they are on.

What the sources establish

A companion piece in Y Combinator's startup library, written by partner Dalton Caldwell, turns the test into action once a company is default dead: grow revenue faster, cut costs, or both. Caldwell states a threshold most founders do not otherwise hear stated outright: in many cases, fewer than two months of runway is the point of no return, at which the responsible path is to lay off staff, pay severance, settle obligations, and wind down rather than run out of cash while owing payroll or tax. Separately, Carta's own explainer, as retrieved on 16 September 2026, supplies the arithmetic Graham's essay assumes: net burn equals monthly expenses minus revenue, and cash on hand divided by net burn gives months of runway, illustrated with a company spending $100,000 and earning $30,000 a month for a $70,000 net burn, giving ten months of runway on $700,000 of cash.

Scope and revision

Each source measures something different, and none predicts the future. Graham's test is a trajectory check under a constant-expense, constant-growth assumption; it does not hold if either changes, which is what acting on the result is meant to cause. Caldwell's two-month threshold is a rule of thumb from YC's advising experience, not a legal deadline, and assumes the company can still wind down in an orderly way at that point. Carta's runway arithmetic is a snapshot using one recent month's numbers; it says nothing about whether that month is representative.

The decision in front of you

As editorial guidance beyond what any one source states, a founder can compute a default-alive or default-dead status this month, recompute it on a fixed schedule rather than only when anxious, and treat sub-two-month runway as a decision deadline rather than a data point to keep monitoring. None of these sources tells a company what to cut; they establish only that the question is answerable from numbers already in the bank account.

• Does the growth rate used in the calculation reflect several recent months, not one unusual one?
• What specific expense or revenue change would move the company from one side of default-alive to the other?
• Is there a standing plan for an orderly wind-down if runway reaches the two-month range?

Default alive and default dead describe a trajectory, not a verdict; the sources here converge on the same practical point, which is that the trajectory is calculable well before it becomes an emergency.