A startup should raise enough capital to reach a defined value-changing milestone, fund the activities and working capital required to get there, include a realistic contingency allowance and preserve enough time to make the next financing decision. The result should come from an integrated monthly cash model—not a preferred round number or a generic runway target.
Key conclusions
- Start with the milestone that should materially reduce technical, commercial or financing risk.
- Build monthly cash requirements from the operating plan, including GST timing, working capital, capital expenditure and transaction costs.
- Model a preferred plan, a minimum viable plan and an operationally coherent downside.
- Set the raise before the cash balance forces a decision; fundraising time is itself a cash requirement.
Why runway alone is not a funding requirement
“We need eighteen months of runway” answers a time question, not an investment question. An investor still needs to understand what the company will have proved at the end of those eighteen months, which activities consume the capital and whether the next financing is likely to occur from a stronger position.
For a seed-stage or Series A company, the relevant destination is normally a measurable reduction in risk: technical performance demonstrated at the required scale, a completed customer qualification, repeatable contracted revenue, production readiness or evidence that unit economics hold outside a pilot. Sentinel’s position is that capital should buy progress that changes the next decision—not simply keep the company operating.
Australian Government guidance describes a cash-flow forecast as an estimate of future sales and costs that helps identify shortages and surpluses. That is the foundation, but an investor-ready requirement goes further by connecting every material cash movement to the milestone plan.
How to calculate the amount to raise
1. Define the destination and evidence
State the milestone in terms an informed outsider can test. “Complete product development” is weak. “Demonstrate 1,000 operating hours at the target throughput and secure two paid customer trials” identifies both the technical result and the commercial evidence.
2. Build the operating sequence
Map the people, equipment, suppliers, approvals, trials and customer work required. Sequence matters. A six-month delay in equipment commissioning may defer revenue while engineering and facility costs continue. It should not be modelled as an isolated revenue change.
3. Convert activity into monthly cash
Use cash timing rather than accounting recognition. Include payroll and on-costs, supplier deposits, inventory, debtor terms, GST receipts and payments, capital expenditure, grants only when their timing is supportable, financing fees and any existing debt service.
4. Add a contingency allowance that reflects the business
A flat percentage contingency can conceal the real exposure. Model the specific events most likely to move cash: later commissioning, slower conversion, lower yield, higher input costs or a smaller first production run. The allowance is the difference between the preferred cash path and the downside the Board is prepared to fund.
5. Preserve decision time
The minimum cash balance should cover the period required to respond. If a new raise may take months, management needs to begin before the model reaches its low point. The funding plan should identify that decision date explicitly.
Illustrative milestone-based calculation
Consider an Australian industrial-technology company seeking to move from a successful pilot to paid demonstration units. The example is illustrative, not a benchmark.
| Component | Preferred plan | Minimum viable plan |
|---|---|---|
| Engineering and team | A$1.20m | A$0.95m |
| Equipment and commissioning | A$0.85m | A$0.60m |
| Working capital and customer trials | A$0.35m | A$0.25m |
| Transaction costs and existing commitments | A$0.15m | A$0.15m |
| Specific contingency allowance | A$0.35m | A$0.25m |
| Minimum closing cash | A$0.30m | A$0.25m |
| Indicative requirement | A$3.20m | A$2.45m |
The preferred plan funds two customer trials in parallel. The minimum plan stages the second unit and delays two hires. Management can therefore explain what A$3.2 million buys, what remains achievable at A$2.45 million and which milestone moves if the round closes below that level.
Common mistakes
- Starting with the amount founders believe the market will accept and forcing the plan to fit.
- Treating revenue as cash received without modelling invoicing, payment terms and working capital.
- Counting an unapproved grant, tax incentive or customer payment as certain cash.
- Adding a percentage contingency without identifying the events it covers.
- Funding to a date that leaves no time for the next raise or operating response.
- Presenting only one plan and leaving the Board unable to prioritise if less capital is available.
Management checklist
- Name the value-changing milestone and the evidence that proves it.
- Reconcile the operating plan to a monthly cash-flow forecast.
- Show preferred, minimum viable and downside cases.
- Identify committed, deferrable and avoidable costs.
- State the next financing decision date and minimum closing cash.
- Explain what changes if the round is smaller or later.
Related questions
How many months of runway should a startup raise?
There is no universal number. The period should cover the work to a meaningful milestone, a realistic downside and enough time to make the next financing decision.
Should contingency be a fixed percentage?
Usually not on its own. A specific scenario—such as delayed commissioning or slower customer payment—shows what the allowance protects against and avoids double counting.
Can expected grants reduce the raise?
Only to the extent that eligibility, amount and payment timing are supportable. A prudent model also shows the cash requirement if the grant is delayed or not received.
What if investors will not fund the preferred amount?
Management should already have a minimum viable plan that states which work is deferred, which milestone changes and whether the reduced plan still creates investable progress.
Sources and scope
- Set up a cash flow statement — business.gov.au (reviewed 23 August 2026).
- Choose your funding — business.gov.au (reviewed 23 August 2026).
- Apply for a business loan — business.gov.au (reviewed 23 August 2026).
Sources support the general principles identified above. The analysis, framework and illustrative examples are Sentinel Capital’s professional judgement.
General information only. This article does not take account of any organisation’s circumstances and is not legal, tax, investment or financial-product advice. Obtain advice from appropriately qualified advisers before acting on a financing, valuation or governance matter.