Default alive

What is default alive?

Default alive describes a startup on track to reach profitability with the money it already has. Paul Graham set out the test in an October 2015 essay. Assume expenses stay constant and revenue keeps growing at the rate of recent months, then check whether the company reaches profitability before the cash runs out. If it does not, the company is default dead and depends on raising more money.

Why it matters to a revenue leader

Default alive turns the revenue growth rate into a survival question. A default dead company depends on investors being willing to fund it, and that willingness can vanish in a weak market. A revenue leader can move the answer more than almost anyone, because steady growth in collected revenue is the main path from default dead to default alive.

A company has $3 million in cash, spends $700,000 a month and collects $300,000 a month, growing 5% a month. Revenue covers costs in about 18 months, but losses before then total about $4.2 million, more than the cash on hand: default dead. At 8% monthly growth, revenue covers costs in about 12 months with losses of about $2.7 million: default alive.