Last month, I had coffee with a friend who’s a hell of a pre-seed investor, and a crafty one. He walked me through a deal I haven’t been able to stop thinking about. A founder with a great profile, still working at an AI-native company, gets about a million dollars at a low-teens cap. There’s no company yet. The check is for him to quit his job and go figure out what to build. Then a tier-one firm comes in at roughly ten times that price, and another tier-one firm comes in right behind them. The press release has one number in it. Three rounds stacked on each other’s shoulders inside one long coat, walking up to the box office and asking for a single ticket.
About two weeks later, I was on a call with a friend who’s a junior investor at an early-stage fund, and before we got to anything else, I brought up the deal. He’d been hearing about deals like it for a week and a half: one round, but with multiple iterations of it before closing, and it was the big funds taking those swings. People I talk to have started calling them tranche rounds. Tranche is French for slice, which is a polite way to describe what happens to the cap table.
I know. “Tranche round” sounds like something a fixed-income desk makes you sit through at 4:30 on a Friday. Stay with me, because I think this is changing what a Series A even is, and I invest at Series A, so selfishly I’d like to know.
So tonight, and by tonight I mean whenever you open this email, let’s talk about tranche rounds: what they are, why everyone is suddenly sewing them, and what happens to venture when the coat comes off.
