Why does Default Alive vs. Default Dead matter?
It reframes the fundraising question from "can we raise" to "do we need to," which changes the negotiating position entirely. A default-dead company is fundraising because it must, and investors can tell — every term gets worse when the alternative to a bad deal is running out of cash. A default-alive company is fundraising by choice, to grow faster than the safe path would allow, and that is the only position from which good terms are available. The calculation forces a founder to actually project revenue growth and expense growth forward rather than living inside the current month's numbers.
What does Default Alive vs. Default Dead look like in practice?
Suppose monthly revenue is growing 10% a month, expenses are flat, and at the current trajectory revenue would cover expenses within the runway remaining — that is default alive, even if the company is unprofitable today. Suppose instead expenses are also growing 10% a month to fund headcount, revenue growth is 4% a month, and the gap between them never closes before the cash runs out — that is default dead, regardless of how much cash is currently in the bank, because the trend, not the balance, is what the test measures.
What are the common mistakes with Default Alive vs. Default Dead?
- Judging the question from the cash balance alone rather than projecting the trendlines of revenue and expense forward.
- Assuming a large recent raise makes the company default alive. A big balance with a bad growth-to-spend ratio is still default dead, just with a longer fuse.
- Treating default alive as permanent. A new hiring plan or a slowing growth rate can flip the answer within a quarter.
- Confusing default alive with profitable. Default alive describes the trajectory reaching profitability in time, not present-day profitability.
Related concepts
- Burn Rate and RunwayBurn rate is how much cash you lose per month; runway is how many months of it you have left before the money runs out.
- Gross Burn vs. Net BurnGross burn is total cash spent in a month with revenue ignored; net burn subtracts what came in — and the gap between them is exactly the part of your runway that depends on revenue holding up.
- Runway Extension LeversThe specific actions available to make cash last longer — cutting burn, raising a bridge, growing revenue, or renegotiating spend — evaluated for how much runway each buys and how fast it can be pulled.