Published by the Uniflow AI editorial team
How do you build a startup fundraising model?
A startup fundraising model connects the amount you raise to cash needs, milestones, ownership, financing terms, and investor requirements. It should show how much capital is required before the next milestone, how long that capital lasts, and how the proposed instrument changes the fully diluted cap table.
Paul Graham, co-founder of Y Combinator, writes in “How to Raise Money” (October 2013), “The best way to raise money is to not need it.” In our analysis, this supports treating fundraising as a milestone-driven planning process rather than assuming that new capital will always be available.
A fully diluted cap table is an ownership schedule that includes issued shares, options, warrants, and securities that may convert into shares. Modelling this complete ownership picture prevents a headline valuation from hiding the actual effect of a financing.
[Editor's note: The source research does not provide a universal benchmark for the ideal fundraising-model length or a universal target for months of runway. Additional sourcing is needed before publishing any fixed rule.]
How much should a startup raise?
The required raise equals the cash needed to reach the next milestone, plus a minimum cash buffer and transaction costs, minus current available cash and highly reliable expected inflows. This calculation is more defensible than choosing a round size from a generic market convention.
The core equation is: required raise = forecast cash requirement until the next milestone + minimum cash buffer − current available cash. The model should calculate this separately for base, downside, and upside cases.
Paul Graham, co-founder of Y Combinator, states in “Startup = Growth” (September 2012), “A startup is a company designed to grow fast.” The implication for fundraising is that capital requirements should connect to measurable growth assumptions rather than to an abstract time period alone.
A milestone may be a product launch, regulatory approval, revenue target, customer target, gross-margin threshold, repeatable acquisition channel, or readiness for the next financing. Steve Blank’s 14 April 2010 essay describes a startup as “an organization formed to search for a repeatable and scalable business model,” which supports linking the raise to business-model evidence.
How should you calculate startup runway?
Runway is the period before cash falls below the company’s defined minimum operating balance. A simple planning calculation is runway in months = available cash ÷ monthly net burn, but a monthly cash-flow model is more accurate when collections, hiring, taxes, or one-time costs change over time.
Monthly net burn equals cash operating expenses plus cash cost of sales minus cash revenue collected. The model should identify the month in which cash falls below the minimum balance instead of relying only on average burn.
The source research identifies runway divided by average burn as a financial-planning calculation, not a universal formula prescribed by one regulator. Claims that every startup should raise exactly 18 or 24 months of runway are [UNVERIFIED as universal rules].
Our team recognizes that a delayed fundraising process can change the required raise even when the operating forecast remains unchanged. For that reason, a downside case should include a fundraising delay alongside lower revenue and higher costs.
What assumptions belong in a startup financial model?
A useful model forecasts cash receipts and payments by month, then connects those figures to the milestone and proposed financing. It should include operating expenses, revenue collection timing, working capital, taxes, one-time costs, and financing events.
The recommended operating forecast includes revenue and collections, cost of goods sold, payroll, contractors, sales and marketing, product and engineering, general and administrative costs, one-time costs, taxes, and working-capital movements. These categories should be modelled monthly rather than treated as one annual total.
Eric Ries, author and entrepreneur and founder of the Lean Startup movement, writes in The Lean Startup (2011), “A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” Scenario modelling is therefore more appropriate than presenting one precise forecast as certain.
Use the following sequence to build the model:
- Establish the opening cap table. Record founder and employee shares, existing investor shares, options, warrants, unissued option-pool reserves, outstanding SAFEs, convertible notes, share classes, and voting rights.
- Build the monthly operating forecast. Model revenue collections, costs, payroll, hiring, product development, sales, marketing, professional fees, infrastructure, taxes, and working capital.
- Calculate net burn and cash runway. Identify the month when cash reaches the minimum operating balance.
- Define the funded milestone. State the product, regulatory, revenue, customer, margin, acquisition, or financing result the round is intended to achieve.
- Calculate the raise target. Add milestone cash needs, buffer, and transaction costs, then subtract cash and highly reliable inflows.
- Run instrument-specific dilution cases. Model priced equity, post-money SAFE, pre-money SAFE, convertible note, UK ASA, and multiple instruments closing at different times.
- Allocate the proceeds. Separate payroll and benefits, product development, sales and marketing, infrastructure, professional fees, office costs, working capital, and contingency.
- Stress-test downside cases. Test delayed fundraising, lower revenue, higher hiring costs, slower acquisition, delayed launch, lower valuation, bridge financing, and failed tax-scheme qualification.
- Prepare legal and investor documentation. Assess the relevant US securities exemption or UK SEIS/EIS position before presenting it as an investor benefit.
- Reconcile the post-close cap table. Update shares, fully diluted ownership, options, conversions, voting rights, cash, and remaining runway.
How does a startup calculate dilution after a funding round?
In a simple priced round, new investor ownership equals new investment divided by post-money valuation. Founder ownership after the round equals founder shares divided by fully diluted post-round shares, with the final result affected by options, warrants, convertibles, SAFEs, and share classes.
The core equations are post-money valuation = pre-money valuation + new investment and new-money ownership = new investment ÷ post-money valuation. These equations ignore other adjustments, so they are a starting point rather than a complete cap-table calculation.
A post-money SAFE uses a different starting point: SAFE ownership under a simple post-money cap = SAFE investment ÷ post-money valuation cap. Y Combinator’s 2018 Post-Money Safe User Guide states that investor ownership is calculated as purchase amount divided by post-money valuation cap.
For example, a $500,000 post-money SAFE with a $5,000,000 valuation cap implies 10% ownership before later financing, assuming no discount, prior SAFE, or option-pool adjustment. The remaining ownership for existing holders in this simplified illustration is 90%.
| Dilution input | Why it matters | Source framework |
|---|---|---|
| Investment amount | Determines the amount of new capital and, in simple cases, the investor ownership percentage. | Y Combinator, Post-Money Safe, 2018 |
| Pre-money valuation | Establishes the company value before a priced round. | NVCA model legal documents |
| Post-money valuation | Includes new investment in the company value. | Y Combinator and NVCA financing frameworks |
| Option-pool size | Changes fully diluted ownership and may affect founder dilution. | NVCA model legal documents |
| Existing SAFEs and notes | May convert into shares and increase total dilution. | Y Combinator and NVCA documents |
| Discounts and interest | Can change the conversion price or number of shares issued. | SAFE and convertible-note terms |
| Conversion timing | Determines which securities are included at each financing event. | Instrument-specific legal documents |
The main contrarian insight is that a simple post-money SAFE percentage can be clear while cumulative dilution remains unclear. Several SAFEs, an enlarged option pool, discounts, and a later priced round can produce a final cap table that differs materially from the first SAFE estimate.
Should a startup use a SAFE, convertible note, ASA, or priced equity round?
No instrument is universally better because each shifts complexity, timing, ownership, and legal risk differently. A SAFE may defer the valuation, a convertible note adds debt terms, a priced round establishes ownership immediately, and a UK ASA provides an advance subscription for future shares.
A SAFE is a contractual right to receive equity after a future triggering event and usually has no interest or maturity date under the standard Y Combinator form. A convertible note is debt that generally converts into equity and usually requires modelling principal, interest, maturity, and conversion conditions.
A priced equity round issues shares immediately at an agreed price and valuation. It can make ownership clearer at closing, while typically involving more negotiation, diligence, and legal documentation than a deferred-conversion instrument.
A UK ASA is an advance subscription agreement for future shares. Its terms, conversion mechanics, and possible SEIS/EIS treatment require UK professional review rather than reliance on the instrument label.
| Dimension | Post-money SAFE | Convertible note | Priced equity round | UK ASA |
|---|---|---|---|---|
| Initial investor position | Contractual right to future equity | Debt that may convert into equity | Shares issued immediately | Subscription for future shares |
| Interest | None under the standard YC SAFE | Interest must be modelled under the note terms | No interest on issued shares | Generally not structured as debt interest |
| Maturity | Standard SAFE has no maturity date | Usually includes a maturity date | Shares have no maturity date | Depends on the agreement |
| Main dilution inputs | Amount, cap, discount, other SAFEs, option pool | Principal, interest, cap, discount, maturity | Investment, pre-money valuation, option pool | Amount, conversion terms, valuation, tax eligibility |
| Main modelling risk | Cumulative dilution may be underestimated | Interest and maturity can change conversion | Ownership is clearer but closing may be more complex | UK tax qualification is not automatic |
The Y Combinator Post-Money Safe documents were published in 2018, while the NVCA model legal documents provide US venture-financing reference materials. The source research flags these documents for review before publication because financing terms and legal guidance can change.
How do UK and US fundraising rules affect the model?
UK and US fundraising assumptions should be separated because SEIS, EIS, ASAs, US SAFEs, Regulation Crowdfunding, and Section 1202 operate in different legal and tax contexts. A model should identify the jurisdiction, instrument, eligibility conditions, filing requirements, and professional review needed for each case.
In the UK, SEIS offers qualifying investors income-tax relief of 50% of the amount invested, and current rules allow a company to raise up to £250,000 through SEIS subject to detailed conditions. EIS investors can generally claim income-tax relief of 30% of qualifying investment, also subject to eligibility conditions, according to HMRC guidance.
A UK company seeking HMRC advance assurance for SEIS or EIS must provide information including its business plan and details of the proposed share issue. Advance assurance is not a guarantee that every investor will receive relief.
In the US, qualifying small-business stock under Section 1202 may allow exclusion from gross income of up to $10 million of gain, or 10 times adjusted basis, whichever is greater, subject to statutory conditions. The Internal Revenue Service and 26 U.S.C. §1202 should be reviewed separately when modelling potential tax treatment for founder or investor equity in a US C corporation.
US Regulation Crowdfunding permits an issuer to raise up to $5 million in a 12-month period, subject to Regulation Crowdfunding conditions. Such offerings generally must use a broker-dealer or funding portal registered with the SEC and FINRA, so platform and compliance assumptions belong in the timeline and cost forecast.
Interest-rate conditions can affect valuation assumptions, debt costs, and investor risk appetite. The Federal Reserve target range was 5.25% to 5.50% from 26 July 2023 until 18 September 2024, when it was lowered to 4.75% to 5.00%, while the Bank of England reduced Bank Rate from 5.25% to 5.00% on 1 August 2024.
How should a startup allocate fundraising proceeds?
A use-of-funds plan should show how each spending category contributes to the funded milestone and should reconcile exactly to the amount raised. It should not list expenses without explaining the operating or validation result those expenses are intended to produce.
At minimum, separate payroll and benefits, product development, sales and marketing, infrastructure, professional fees, office and administration, working capital, and contingency reserve. Founder compensation belongs in payroll because omitting it understates cash burn and overstates runway.
The model should connect each category to a milestone, such as a product launch, regulatory approval, revenue target, customer target, gross-margin threshold, repeatable acquisition channel, or readiness for the next financing. This connects Steve Blank’s business-model validation concept to the financial forecast.
Buffer’s “Transparent Fundraising” publication from 2014 provides a public example of connecting operating performance, cash planning, and capital decisions through disclosures about revenue, salaries, and fundraising history. Public announcements commonly provide less detail than a complete internal use-of-funds model.
What should founders test before presenting the model?
Founders should test whether the company can reach its stated milestone if fundraising is delayed, revenue is lower, hiring costs are higher, acquisition is slower, or the next valuation is lower. The model should also show the consequences of bridge financing and failed SEIS/EIS or other investor tax treatment.
A downside case should change operating assumptions rather than merely subtracting a fixed percentage from the raise. The source research does not provide a universal contingency percentage, so fixed rules such as 10% or 20% are [UNVERIFIED as universal standards].
Our analysis indicates that the most useful model output is not a single fundraising number. It is a linked set of outputs showing the cash date, milestone status, ownership outcome, instrument terms, and next-financing requirement under each scenario.
This article is planning guidance, not legal, tax, accounting, or investment advice. Securities rules, tax incentives, financing documents, and interest-rate conditions require review by qualified professionals before a fundraising decision.
Sources used in this analysis
- Y Combinator, Post-Money Safe documents, 2018; accessed 26 July 2026.
- National Venture Capital Association, Model Legal Documents, current set; accessed 26 July 2026.
- HMRC, Seed Enterprise Investment Scheme, current guidance; accessed 26 July 2026.
- HMRC, Enterprise Investment Scheme, current guidance; accessed 26 July 2026.
- HMRC, Advance assurance on a venture capital scheme, current guidance; accessed 26 July 2026.
- SEC, Regulation Crowdfunding, current guidance; accessed 26 July 2026.
- IRS and 26 U.S.C. §1202, current statutory basis; accessed 26 July 2026.
- Federal Reserve, FOMC statement, 18 September 2024.
- Bank of England, Bank Rate reduced to 5%, 1 August 2024.
Key Definitions
Runway: The period before a company’s cash falls below its defined minimum operating balance.
Net burn: The cash consumed by a business over a period after cash receipts are deducted from cash outflows.
Fully diluted cap table: An ownership schedule that includes issued shares and relevant options, warrants, SAFEs, notes, and other conversion rights.
Pre-money valuation: The company valuation immediately before new investment is added.
Post-money valuation: The company valuation immediately after new investment is added.
SAFE: A Simple Agreement for Future Equity that gives an investor a contractual right to receive equity after a defined triggering event.
Convertible note: A debt instrument that may convert into equity under specified financing or maturity conditions.
Priced equity round: A financing in which shares are issued immediately at an agreed price and valuation.
ASA: An Advance Subscription Agreement used to subscribe for shares that will be issued in the future, commonly by UK startups.
Use-of-funds plan: A schedule showing how fundraising proceeds will be allocated across operating and strategic spending categories.
Frequently Asked Questions
How much runway should a startup raise for?
There is no regulator-prescribed universal number of months. A startup should calculate the cash required to reach its next operating or financing milestone, add a minimum buffer and transaction costs, and subtract available cash and highly reliable expected inflows. Claims that every startup should raise exactly 18 or 24 months are unverified as universal rules.
How do you calculate startup dilution?
For a simple priced round, new investor ownership is generally the investment divided by post-money valuation. The complete calculation must also include the option pool, prior SAFEs, convertible notes, warrants, share classes, and conversion timing. Y Combinator’s 2018 Post-Money Safe documents provide a separate starting formula for post-money SAFE ownership.
Is a SAFE better than a priced equity round?
Neither is universally better. A SAFE can defer valuation and reduce early transaction complexity, but cumulative dilution may be less visible. A priced round establishes ownership immediately but generally requires more negotiation, diligence, and legal documentation.
Can UK startups use SEIS for a SAFE or ASA?
Potential eligibility depends on the instrument’s legal terms and current HMRC rules. A company should not promise SEIS treatment solely because an instrument is labelled a SAFE or ASA. HMRC advance assurance is based on submitted information and is not an unconditional guarantee that investors will receive relief.
What is the difference between pre-money and post-money SAFE dilution?
A post-money SAFE is designed to make the SAFE investor’s ownership percentage more transparent relative to the post-money valuation cap. A pre-money SAFE can be harder to estimate when multiple SAFEs and other securities are issued before conversion, according to Y Combinator’s 2018 SAFE user guide.
Should founder salaries be included in use of funds?
Yes. Payroll, benefits, and founder compensation are cash expenses and should be explicitly modelled. Omitting them understates burn and overstates runway, although the appropriate salary policy is company-specific.
How much contingency should a startup include?
Contingency should reflect identified risks such as hiring delays, revenue slippage, infrastructure costs, and fundraising delays. The source research does not establish a universal percentage, so fixed rules such as 10% or 20% should not be presented as universal standards.
What should a startup fundraising model show investors?
It should show the raise target, monthly cash forecast, runway, funded milestone, use of funds, scenario assumptions, instrument terms, dilution, post-close ownership, and the conditions required for the next financing. UK and US securities and tax assumptions should be labelled separately and professionally reviewed.