The most common way a venture studio dies is running out of money before equity matures. This models that gap: what you burn, when distributions start, and the largest hole you have to fund along the way.
| Year | Spend | Distributions | Net | Cumulative cash |
|---|
The number that matters most here is the peak funding gap, and it is usually larger than people expect. It is not your annual burn. It is the accumulated hole dug across every year before distributions catch up, and it has to be funded from somewhere: prior exits, an operating business, a fund, or your own balance sheet.
A studio that plans around annual burn and ignores the cumulative figure is the studio that runs out in year three with two promising ventures it can no longer support. That is the most common way this model fails, and it fails for arithmetic reasons rather than strategic ones.
Three inputs move the outcome far more than the rest, and all three are the ones people are most optimistic about.
Time to profitability. Moving this from three years to four does not add a year of cost, it adds a year of cost on every venture in flight simultaneously. Try it and watch the peak gap move.
The hit rate. The share of ventures that reach profitability at all. Most people entering this model use a number they have never observed, because they have not run enough ventures to have observed one. If you have no evidence, run it at half whatever you first typed and see whether the plan still works.
Ventures started per year. Increasing this makes the hole deeper immediately and the recovery later. Studio attention does not divide cleanly, so the number you can fund is usually higher than the number you can actually run well. If those two disagree, the smaller one is the real constraint.
This is a cash-flow model, not a valuation model. It ignores exits entirely, which means it answers "does this pay for itself" rather than "what could this be worth." That is intentional: exits are the part you do not control, and a studio whose plan requires one is a studio betting on someone else's timing.
It also assumes ventures either reach profitability or contribute nothing, with no partial outcomes and no acquisitions, and it treats the cost of a venture as spent in the year it starts. Real studios are messier in all three directions. The point is not precision. It is to make the shape of the problem visible before you commit to it.
For the reasoning behind the inputs, the venture studio playbook covers the capital structures, how studios make money, and why running out of runway before equity matures is the failure that kills most of them.
We read every pitch ourselves, and every no comes with a reason.