Money in / money out

Default alive vs default dead: what it actually means for your numbers

Updated 17 July 20267 min readLedgers Team

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The single most useful question you can ask about your startup
Why your bank balance doesn't answer the question
How to actually work it out
The mistake that makes founders think they're safer than they are
What to do once you know
Check it monthly, not before your next raise

Money in / money out2 of 6

1.A simple burn-rate model you can build in an afternoon
2.Default alive vs default dead: what it actually means for your numbers
3.How to read your numbers when you hate numbers
4.What is gross margin and why should I care?
5.What is runway and how do I work out mine?
6.Working capital explained (the money your business needs to breathe)

Quick answer

Default alive means you'd reach profitability on your current cash, growth and spending before the money runs out. Default dead means you wouldn't. Here's how to work out which you are — and what to do about it.

The single most useful question you can ask about your startup

There's a question the investor Paul Graham popularised that cuts through almost everything else about a startup's finances: are you default alive or default dead? It's worth understanding properly, because it reframes your numbers from a static snapshot ("we have £180,000 in the bank") into the thing that actually matters — the trajectory those numbers are on.

Here's the definition. A startup is default alive if, on its current cash, its current growth rate, and its current spending, it would reach profitability before the money runs out — without needing to raise again. It's default dead if, on that same trajectory, the cash hits zero first. The word "default" is doing the work: it means "if nothing changes." Not what happens if you raise, not what happens if growth suddenly triples — what happens if you just keep going as you are.

Most freshly funded startups are default dead when they start, and that's normal. The point isn't to be ashamed of it. The point is to know, because the founders who get caught out are almost always the ones who assumed they were fine and found out otherwise with three months of cash left.

Why your bank balance doesn't answer the question

The trap is looking at the balance and feeling reassured. £180,000 sounds like a lot. But "how much do we have" is the wrong question — the right one is "where is this heading?" Two startups with the identical £180,000 can be in completely opposite situations:

One is spending £15,000 a month, growing revenue steadily, and on track for revenue to cover costs in ten months. It's default alive — the money lasts long enough for the business to stand on its own.
The other is spending £30,000 a month with flat revenue. It has six months of cash and no path to closing the gap in that time. It's default dead — the trajectory ends at zero.

Same balance, opposite fate. The difference is entirely in the movement — burn, growth, and how they interact over time — which is exactly what a bank balance can't show you. This is why runway and burn are the numbers that matter more than the headline cash figure. See What is runway and how do I work out mine →.

How to actually work it out

You don't need anything fancy — you need to project your cash forward and see which happens first: revenue overtaking costs, or the balance hitting zero. In outline:

Start with today's cash. The real number in the business bank account.
Project revenue forward at your current growth rate. Be honest — use the growth you're actually seeing, not the hockey stick in the deck.
Project your spending forward. Include the costs you know are coming, not just today's — the hire you're about to make, the tool you're about to buy.
Walk it month by month. Each month, add revenue, subtract costs, and carry the balance forward.
See which line wins. If revenue crosses costs (you turn cash-flow positive) while the balance is still above zero, you're default alive. If the balance reaches zero first, you're default dead.

That month-by-month walk is just a simple burn-rate model, and it's genuinely an afternoon's work to build. We show you exactly how in Build a burn-rate model in an afternoon →. If you'd rather not build it, good accounting software keeps the underlying numbers — cash, burn, growth — live so the projection is always at your fingertips.

The mistake that makes founders think they're safer than they are

The most common error here is projecting revenue optimistically while projecting costs conservatively — assuming sales will grow faster than they have been, while quietly forgetting the costs you're about to add. Both biases push in the same direction: they make you look more default alive than you are.

Two specific traps to avoid. First, using your best month as your growth rate instead of your realistic average — one good month is not a trend. Second, forgetting committed future costs — the salary of the person whose offer you've already signed, the annual software bill that renews next quarter, the office you're about to take. A projection that ignores costs you've already committed to isn't a projection; it's a wish. Model the growth you're actually achieving and all the spending you know is coming, and the answer you get is the one you can trust. (Related trap: confusing profit with cash — see Profit vs cash: why you can be profitable and still broke →.)

What to do once you know

The value of the question is that it turns a vague anxiety into a concrete decision. If you're default alive, your job is to protect it — don't let costs quietly creep up and tip you into default dead without noticing, and enjoy the rare freedom of not needing to raise (which, not coincidentally, is the best position to raise from).

If you're default dead — which, again, is normal early on — you have exactly three levers, and it's worth being deliberate about which you pull:

Grow faster. Increase revenue enough that the lines cross before the cash runs out. The best option, and the hardest to do on demand.
Spend less. Cut costs to extend runway and lower the bar revenue has to clear. Within your control, and often underused.
Raise more. Bring in cash to buy time — but only if you're confident you can, and mindful that "we'll just raise" is an assumption, not a plan. If this is the route, get your numbers in order early: How much runway do you need to raise? →.

The founders who navigate this well aren't the ones with the most cash. They're the ones who know, at any moment, which side of the line they're on — and who check often enough that the answer never surprises them.

Check it monthly, not before your next raise

Default alive vs default dead isn't a one-off calculation; it's a number that moves every month as your revenue and costs change. Recalculate it regularly — a founder who knows their status the way they know their bank balance is a founder who never gets caught out. If your books are current and reconciled, this takes minutes; if they're months behind, you're flying blind on the single most important question about your company's survival. See How to read your numbers when you hate numbers →.

Know which one you are. Then decide, on purpose, what to do about it.

Ledgers keeps your cash, burn and runway live and reconciled, so "are we default alive?" is a glance rather than a spreadsheet exercise. See exactly where your trajectory is heading, every month. Know your runway at a glance → free to try.

Next: Build a burn-rate model in an afternoon →

Frequently asked questions

What does default alive mean?

A startup is default alive if, on its current cash, growth rate and spending, it would reach profitability before the money runs out — without needing to raise again. Default dead means that on the current trajectory the cash runs out first. It's a question about your path, not just your bank balance today.

How do I know if I'm default alive or default dead?

Project your cash forward: take your current cash, your expected revenue growth, and your planned spending, and see whether revenue overtakes costs before the balance hits zero. If it does, you're default alive; if the balance hits zero first, you're default dead and need to change growth, costs, or raise.

Is being default dead always bad?

Not necessarily — most startups are default dead early on and plan to raise before the money runs out. The danger is being default dead without knowing it, or assuming a raise will always be available. Knowing your status lets you decide deliberately rather than discovering it too late.

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