A tranche is a portion of a total financing commitment released contingent on the company achieving specific defined milestones. From the French for "slice," milestones include revenue thresholds, product milestones, customer counts, or regulatory approvals. It is used in venture debt arrangements, structured equity rounds, and occasionally traditional venture rounds to manage investor risk by tying capital release to performance rather than releasing the full commitment at closing. It is a structural mechanic that protects investors at the cost of company flexibility, and a feature founders should generally negotiate against.
The common contexts where tranching appears: