A business can grow several-fold on the revenue model and run out of money on the cash model. In placed-instrument businesses the three drivers — instrument capex ahead of revenue, receivables build tracking the ramp, and one-time regulatory spend — routinely stack in the same period.
Why growth models conceal cash walls
A revenue model answers one question: how large does the business become if the plan works. It says nothing about whether the business can fund the interval between committing to a customer and collecting from that customer. In placed-instrument businesses, growth itself creates the funding gap, because each new placement is a cash outflow before it becomes a cash inflow, and the model that shows revenue compounding can be the same model that shows the bank balance falling.
Boards reviewing a revenue-model forecast tend to focus on the top line and the resulting valuation trajectory, because that is what the model is built to show. The cash consequence of the same assumptions sits several tabs away, in a working-capital schedule that is often built later, with less scrutiny, and updated less frequently than the revenue assumptions that drive it.
The gap matters most at the point a company is raising, because investors read the revenue model for growth and the cash model for survival, and a founder who has only built the first is unprepared for the second conversation. Reconciling the two before the raise removes a predictable source of investor pushback in due diligence.
Instrument capex funded ahead of the revenue it generates
In a placed-instrument model, the company typically owns or subsidises the hardware that sits in a customer's facility and earns revenue through consumables, service or a usage fee over the following years. The capital outlay for the instrument is incurred in full at placement, while the revenue it generates is recognised in instalments over the life of the relationship, often three to five years.
This creates a structural lag between spend and recovery that scales with the number of new placements, not with cumulative revenue. A quarter with an unusually strong placement number, which looks like the best quarter in the revenue model, can be the worst quarter in the cash model, because the capital outlay for those units lands immediately and the offsetting revenue has not yet begun.
Forecasting this correctly requires treating instrument capex as a separate line tied to unit placements, not as a percentage of revenue, and testing the forecast against the actual timing of past placement cohorts rather than an averaged assumption.
Receivables build as a function of the ramp, not a constant
Receivables in a ramping placed-instrument business do not grow proportionally with revenue; they grow with the number and size of accounts still within their collection cycle, which is itself a function of how fast the company is adding customers. A business accelerating its placement rate will see receivables grow faster than revenue for a period, even with unchanged payment terms, simply because more accounts are mid-cycle at any given point.
A net working capital adjustment framework is useful here: the ramp should be modelled as changing the required working-capital investment period by period, not as a fixed days-sales-outstanding assumption applied to a growing revenue line. Modelling it as a constant systematically understates the cash requirement during the steepest part of the growth curve, which is exactly when the company can least afford to be wrong.
Regulatory or institutional customers often extend the collection cycle further than commercial ones, and a shift in customer mix towards these accounts should be reflected explicitly in the receivables assumption rather than absorbed into an average.
One-time regulatory spend and its timing
Regulatory spend in life sciences and medtech businesses is lumpy by nature: clearance, labelling, post-market surveillance set-up and quality-system build-out arrive in defined windows tied to product and geographic milestones rather than to revenue. A revenue model that smooths this spend across periods, or omits it because it is treated as a one-off, misrepresents the cash the business needs to hold in reserve around those windows.
The risk is not the spend itself but its coincidence with the other two drivers. A regulatory milestone frequently falls in the same period as an acceleration in placements, because both are triggered by the same underlying commercial progress, and the three cash calls then stack rather than spread.
Treating regulatory spend as a scheduled, named line item, tied to a specific milestone date rather than a percentage-of-revenue assumption, is the only way to see this coincidence before it happens rather than after the cash has gone.
Reforecasting on a cash basis before the raise launches
Before a fundraise, the practical step is to rebuild the forecast bottom-up on a cash basis, using the three drivers as explicit, separately timed line items rather than as derivatives of the revenue line. This produces a monthly cash trajectory that can differ meaningfully from the revenue trajectory even when the underlying commercial assumptions are unchanged.
This reforecast should feed directly into the sizing of the raise and the runway assumption presented to investors, because a runway figure derived only from the revenue model will be wrong in a predictable direction: it will overstate the runway during the steepest growth period. Investors performing quality of earnings work on a fundraise will rebuild this schedule themselves if the company has not already done so, and a mismatch discovered in diligence is more damaging than the same mismatch disclosed upfront.
A cash-basis reforecast also clarifies what the raise is actually for, separating growth capital from working-capital funding, which sharpens both the amount raised and the story told to investors about its use.
Entity structure issues that surface at the same time
Placed-instrument businesses operating across several regulatory jurisdictions often hold instruments, contracts and receivables in different entities than the one raising capital, and the cash constraint described above tends to surface entity-level questions that a consolidated revenue model never raises. Which entity funds the instrument capex, which entity holds the receivable, and which entity carries the regulatory spend are questions with real cash-timing consequences, because cash trapped in one entity is not automatically available to fund a shortfall in another.
An ebitda add-back schedule prepared for a fundraise should be checked against this entity map, since add-backs recorded at group level can obscure which entity actually bears a cost, and an investor's cap table and consolidation questions during diligence often trace back to exactly this structure.
Resolving intercompany funding arrangements, transfer pricing and cash-pooling mechanics before the raise, rather than during diligence, keeps the entity question from becoming a second, unplanned negotiation on top of the primary one.
Last reviewed January 2027
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