Fundraising & Equity
Understanding Milestone Tranches in Term Sheets
Collated by Harry Prabandham
Curated by Rubric Financial
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How Milestone Tranches Work
- Instead of receiving all committed capital at close, investors release funding in stages tied to specific milestones (e.g., '$10M now, $10M when you hit $10M ARR by Q4')
- Tranches give investors downside protection — they commit less capital upfront and release more only if the company performs
- The problem: you hire and spend based on the full commitment, but only receive partial funding — creating existential risk if you miss a milestone
- Milestone tranches are increasingly common in uncertain markets where investors want to de-risk their commitments
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