Tranches, back in my youth, were very common.

Back in the days when it took more money to get off the ground, and venture capital was less competitive, tranches were a great strategy for VCs.

We know you need $10m. So we’ll give you $5m today. And then $5m more in 6 months. IF. It goes OK enough. And if you do well, of course we’ll invest more. At today’s price. Because we just bought an option to do that.

Tranches are much less common today, but they still happen.

There is almost no benefit to the start-up of the rest of the tranche. It almost always is a soft commitment, with infinite “outs”. And worse, it creates confusing signalling if you need another investor. Because they have to compete with a tranche.

Net net my advice:

Take all the money at a lower valuation if you can, instead of two tranches at a higher nominal valuation. My two cents.

’Cause otherwise, that second half may never show up.

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