This could be good from the entreprenuer's point of view, but would it work for the investors? VCs want to hit home runs so they want to pour loads of cash in and take a big stake. If they minimize (optimize) funding to align with startup's expenditure, they will presumably give up equity - their profit - for cash, which they have loads of. They'll also have more overhang - unless they overcommit and invest in more companies like seats on an airline, which might result in a run on their capital!
From the startup's perspective, there's also the risk of the VC changing their mind with a "we're withdrawing the rest of your funding - sue us if you want, but the lawsuit will last longer than your company can stay in business", which would suck.
I'm thinking in terms of a deal, say, $1m guaranteed funding, withdraw cash as you like, equity will be priced at 5% + 1% per $100k (so the option on $1m is quite expensive). Is there another way it could be structured that would make more sense?
I think a deal like you describe would make a lot of sense... but given the way that VCs are funded, I don't think they'd like it very much. If you've raised X dollars for a fund, and you're already worried about keeping some money in reserve so that you can participate in future funding rounds, the last thing you want is to have even more uncertainty about how much money you have left in the fund.
From the startup's perspective, there's also the risk of the VC changing their mind with a "we're withdrawing the rest of your funding - sue us if you want, but the lawsuit will last longer than your company can stay in business", which would suck.
I'm thinking in terms of a deal, say, $1m guaranteed funding, withdraw cash as you like, equity will be priced at 5% + 1% per $100k (so the option on $1m is quite expensive). Is there another way it could be structured that would make more sense?