Metrics & Performance
Default Dead
Last updated
Quick Answer
A company that will run out of cash before reaching profitability if it maintains its current trajectory — the opposite of default alive.
Paul Graham introduced the default dead / default alive framework as a simple way for founders to assess their existential situation. A company is default dead if, at current revenue growth rates and burn rates, it will run out of money before it can become profitable without raising more capital.
A company is default alive if it can reach profitability on its current trajectory. Default alive companies have negotiating leverage with investors; default dead companies are desperate. Many founders don't know which category they're in — Graham argues they should.
In Practice
A startup with $2M in the bank burning $200K/month with flat revenue is default dead: it has 10 months of runway and no path to profitability. If investors don't come through, it dies. A startup with $1M in the bank burning $50K/month growing 20% MoM might be default alive — the math eventually works.
Why It Matters
Knowing whether you're default dead changes everything about how you run the company and how you approach investors. Default dead founders often make the mistake of acting like they're not, which leads to bad fundraising strategy and misallocated burn.
VC Beast Take
The 2022-2023 market turned many default alive companies into default dead ones overnight as multiples collapsed and follow-on rounds evaporated. The companies that survived had genuinely internalized this framework years earlier.
Related Concepts
Frequently Asked Questions
What is Default Dead in venture capital?
Paul Graham introduced the default dead / default alive framework as a simple way for founders to assess their existential situation. A company is default dead if, at current revenue growth rates and burn rates, it will run out of money before it can become profitable without raising more capital.
Why is Default Dead important for startups?
Understanding Default Dead is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
What category does Default Dead fall under in VC?
Default Dead falls under the metrics category in venture capital. This area covers concepts related to the quantitative measures used to evaluate fund and company performance.
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