# How a raise changes runway

> A SAFE seen from the runway: more cash, the same burn, and Northwind turned from default dead to default alive at the growth it already has.

Source: https://lopifi.com/learn/how-a-raise-changes-runway
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**How does raising a SAFE change my startup's runway?** A SAFE seen from the runway: more cash, the same burn, and Northwind turned from default dead to default alive at the growth it already has.

[Default alive or default dead](https://lopifi.com/md/learn/default-alive-or-default-dead) left Northwind default dead with the hires at 5% growth. One way out is money. Suppose the founders raise $250,000 on a [SAFE](https://lopifi.com/md/glossary/safe) on Nov 2. What that does to ownership, and how the SAFE converts, is the subject of the [Cap tables & raising track](https://lopifi.com/md/learn/equity). Here's the finance side: the cash arrives, burn doesn't change, and the company has more months to reach profit.

*[Figure: burn runway]*

With the hires and the SAFE: the same burn, more fuel.

|  | Without the SAFE | With the SAFE |
| --- | --- | --- |
| Cash to start | 35,352.60 | 285,352.60 |
| First month's net burn | 8,292.60 | 8,292.60 |
| Runway on that burn | 4.3 months | 34.4 months |
| First profitable month | Cash runs out first | July 2027 |
| Verdict | Default dead | Default alive |

The hires, at plan growth, with and without the SAFE.

> **A raise buys months, not a lower burn. It's financing, so it never counts as cash in when burn is measured.**

On the books the SAFE money isn't revenue, and it usually isn't equity yet either. Most SAFEs are classified as liabilities until they convert, because the number of shares they settle into varies. Cash goes up and a SAFE liability goes up by the same amount. Nothing touches the income statement.

— [ASC 480-10 — Distinguishing Liabilities from Equity](https://asc.fasb.org/480/tableOfContent), Why a SAFE usually sits with the liabilities until it converts

The first option grant that follows a raise works the other way. [Stock-based compensation](https://lopifi.com/md/glossary/stock-based-compensation) is a real expense under ASC 718, measured at grant-date fair value and spread over vesting. It moves no cash, so it lowers profit and leaves burn alone. Investors see it twice: in the P&L, and as dilution.

— [ASC 718 — Compensation—Stock Compensation](https://asc.fasb.org/718/tableOfContent), Equity awards are an expense, measured at grant-date fair value — and move no cash

> **What a post-money SAFE buys.** On a post-money SAFE, the ownership sold is the investment divided by the post-money cap, so the dilution is known the day it's signed. The finance question is the other one: how many months does the money buy, and does it get the company to profit at the growth rate it actually has?

> “On a post-money valuation cap SAFE, the ownership sold equals the investment divided by the valuation cap.”

— [Y Combinator — SAFE financing documents](https://www.ycombinator.com/documents), The post-money SAFE, from the firm that publishes it

**Raise**
- Pro: Extends runway without slowing the plan
- Con: Dilution
- Con: Months of founder time, with no certainty of closing
- Best for: A business that works and needs time to grow into its costs

**Delay the hires**
- Pro: No dilution
- Pro: Keeps the company default alive on its own cash
- Con: Delays the work the hires would have done
- Best for: Growth that's real but slower than planned

**Cut costs**
- Pro: Immediate, and fully in the founders' control
- Con: Hard to reverse; the people affected are real
- Best for: When the plan was too big for the evidence

Three ways to buy time, seen from the runway.

**Northwind — The board conversation.** "With the hires, we're default dead at 5% growth. A $250,000 SAFE makes us default alive at the same growth, reaching profit in July 2027, with no change to burn. Without it, we hire one person, not two."

## Where this lesson's rules come from

- [ASC 480-10 — Distinguishing Liabilities from Equity](https://asc.fasb.org/480/tableOfContent) — Why a SAFE usually sits with the liabilities until it converts (codification)
- [ASC 718 — Compensation—Stock Compensation](https://asc.fasb.org/718/tableOfContent) — Equity awards are an expense, measured at grant-date fair value — and move no cash (codification)
- [Y Combinator — SAFE financing documents](https://www.ycombinator.com/documents) — The post-money SAFE, from the firm that publishes it (reference)
- [Wikipedia, “Simple agreement for future equity”](https://en.wikipedia.org/wiki/Simple_agreement_for_future_equity) — The SAFE — background (reference)
- [Wikipedia, “Stock dilution”](https://en.wikipedia.org/wiki/Stock_dilution) — Dilution — background (reference)

## Read further

- https://lopifi.com/md/journal-entries/stock-based-compensation
- https://lopifi.com/md/journal-entries/issuing-common-stock
- https://lopifi.com/md/calculators/free-cash-flow
- https://lopifi.com/md/differences/gross-burn-vs-net-burn
- https://lopifi.com/md/startups/how-to-account-for-safes
- https://lopifi.com/md/startups/stock-options-409a-and-vesting
- https://lopifi.com/md/startups/burn-rate-and-runway
- https://lopifi.com/md/accounting/safe
- https://lopifi.com/md/accounting/runway
- https://lopifi.com/md/accounting/asc-718
- https://lopifi.com/md/accounting/cap-table
- https://lopifi.com/md/accounting/priced-round
- https://lopifi.com/md/docs/domain/10-metrics

- **Track:** [Finance](https://lopifi.com/md/learn/finance)
- **Lesson:** Lesson 7 of 8 — 8 min
- **Terms taught:** [SAFE](https://lopifi.com/md/glossary/safe), [Runway](https://lopifi.com/md/glossary/runway), [Default alive](https://lopifi.com/md/glossary/default-alive), [Net burn](https://lopifi.com/md/glossary/net-burn), [Stock-based compensation](https://lopifi.com/md/glossary/stock-based-compensation), [Liability](https://lopifi.com/md/glossary/liability)
- **Previous:** [The burn multiple, Finance · Lesson 6](https://lopifi.com/md/learn/saas-metrics-and-unit-economics/burn-multiple)
- **Next:** [The monthly board pack, Finance · Lesson 8](https://lopifi.com/md/learn/monthly-board-pack)
- **The course:** https://lopifi.com/md/learn