Are you default alive?

On your current trajectory — revenue growing at the rate it actually grows, expenses on the path they’re actually on — does the company reach profitability before the cash runs out? Reach it and you’re default alive; need another round first and you’re default dead. Paul Graham’s question — answer it before every fundraise conversation, because the answer sets your leverage.

The question, precisely

Paul Graham posed it in a 2015 essay, “Default Alive or Default Dead?”, and the framing has not needed revision since. Hold expenses and growth exactly where they are. If the company reaches profitability before the money runs out, it’s default alive. If it needs more funding to get there, it’s default dead. What made the essay land was Graham’s observation that most founders he asked didn’t know their answer — not that the answer was bad, but that it was unknown. The inputs already sit in your books; the only work is projecting them forward.

The load-bearing phrase is “current trajectory.” This is a projection, not a snapshot, which is why the P&L alone can’t answer it. A company losing money every month can be default alive, because its growth compounds to the crossover with cash to spare; a company near break-even can be default dead, because its hiring plan grows expenses faster than revenue grows. Runway tells you how long the money lasts — worth computing properly — while default alive tells you whether the path ends anywhere good before it does. Two companies with identical runway can get opposite answers.

It isn’t a grade on ambition, either. Plenty of well-run companies choose to be default dead for a stretch, on purpose. It’s a statement about dependency: whether your company’s survival is a decision you make or a decision a future investor makes.

How to compute it

You can’t read the answer off a bank balance; you have to project. The inputs are the same ones a runway projection uses: cash, monthly expenses, monthly revenue, and a monthly growth rate for each of the last two. Step forward month by month, compounding revenue at its growth rate and expenses at theirs, and watch for two events. The default-alive month is the first month projected revenue meets or exceeds projected expenses. If cash crosses zero before that month arrives, you’re default dead at this pace. (And if revenue covers expenses today, the question is already answered.)

Two honesty rules keep the projection worth running. Use your trailing three-month growth rate, not the plan’s — the question asks about the trajectory you’re on, and a plan isn’t a trajectory yet. And keep the revenue and expense lines clean: gross vs net matters here exactly as it does for burn. The runway calculatorruns this projection over 24 months and reports your default-alive month from the same inputs — free, no signup. If revenue hasn’t caught expenses anywhere in that window, treat yourself as default dead for planning purposes. Rerun it monthly: one signed offer or one strong quarter can flip the answer in either direction.

The decision tree

The answer sorts you into one of three positions, each with its own move.

• Default alive. Raising is optional and the leverage is yours. You can raise to go faster, on terms you like — or decline. And the fact that you can decline shows in every conversation you take.
• Default dead with a credible path. Raise before the leverage inverts. A fundraise takes about six months to run properly, so the real window is your runway minus six months — and terms get worse as it closes. Start while raising is still a choice.
• Default dead without one. Two honest options: cut expenses until the projection crosses — expenses are the one input you fully control — or accept the dependency consciously and treat the next raise as a deadline with a date on it, not a hope.

What it changes about fundraising posture

Raising from default alive reads as opportunity: you’re selling acceleration, and you can walk away. Raising from default dead reads as need: the zero-cash date is sitting in your own numbers, and everyone across the table can do the division. Investors price the difference — in how fast they move, in the terms they offer, in how hard they push. Same deck, different gravity. Which is why the question belongs in your monthly close, not just in fundraise prep: the time to notice you’re default dead is while you can still change the trajectory, not after it’s been priced.

Telling investors which you are

Say it plainly in the update, in one sentence: “We’re default alive as of this month” or “We’re default dead at current growth; the plan is below.” Your investors can compute it from the metrics block you send them — revenue, burn, cash — so ambiguity doesn’t hide the state. It only withholds the plan. The sentence costs you nothing in a good month and buys credibility in a bad one.

A default-dead company with a stated plan reads as managed. An ambiguous one reads as unexamined — and unexamined is the read that costs you. If the sentence you need to write is the hard one, sharing bad news with investors covers how to carry it in the standard format without spin.

Questions