Traunch
Candlefocus EditorThe goal of a traunch is to ensure that the VC firm gets the expected return on their investment. By investing in tranches, investors can more accurately assess the overall value of a venture and make adjustments accordingly. Investing in tranches also helps VC firms to reduce their risk by moderating the amount of capital they are investing upfront. If a venture fails to meet the required performance goals, the VC firm can break their commitment and walk away without losing the entire investment.
The disadvantage of traunched investments is that they can make things difficult for entrepreneurs. By having to meet certain performance targets and milestones within a specified time-frame, entrepreneurs are left with little flexibility and limited time in which to grow their business. This can put a strain on the venture as time and resources must be diverted to reach the performance goals or risk losing the rest of the funding.
Overall, traunch investing is a popular method used by many venture capital firms in order to manage the risk associated with investing. While this type of investing can provide a degree of security for VC firms, it can also prove difficult for entrepreneurs as it reduces their flexibility and limits their ability to grow their business.