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What’s with this tranched investing?
What’s with this tranched investing?

I had another call today where co-investors batted for tranched investment to ‘ensure financial discipline’ in startup founders. I am strongly opposed to it. Either you trust in founders and invest, or don’t. Put terms in agreement to ensure financial oversight.

Hate milestones based investing. Things go wrong all the time. Putting founders under added stress of uncertainty on funds is useless. How will founders budget and plan spend? What if second tranche doesn’t materialize? Then they risk being in constant fundraising mode. Investors will always profess 100% commitment. Then don’t keep this sword dangling on the startup. You know what’s commitment? No tranches.

An incubator has this practice at seed stage. No disrespect, but that’s not how you attract the best startups. Do your due diligence & then trust. Have oversight role if needed. If things don’t work out, learn to pick better teams.

This old school way of almost ‘schooling young founders’ must go. Simpler the better in my opinion.

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