Traunch (Definition And Meaning In Business)

What is a Traunch?

How do you legally define it?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

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What Is Traunch

A “traunch” refers to a series of payments made over a period of time based on the achievement of certain performance measures (KPI).

Quite often, within the business financing world, we’ll talk about an investment traunch or financing traunch to refer to the series of payments to be paid by a venture capitalist or bank to a company.

When a VC provides financing to a startup, each financing round will be considered a traunch and may be provided to the startup provided it meets certain financial performance metrics.

As a verb or adjective, a traunch is something that is divided into portions or allotments. 

Traunch Definition

What is the definition of traunch?

According to Investopedia, traunch is defined as:

A traunch is one of a series of payments to be paid out over a specified period, subject to certain performance metrics being achieved.
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When a payment is traunched, it means that it is “divided” or “split up”.

Consider a traunch to be a series of allotments of funds for a pre-defined purpose.

Origin 

The origin of the term traunch is based on the Old French term “tranche” which means a “slice” or “to cut”.

In the English language, the French word “tranche” was adopted to refer to a financial appropriation in the late nineteenth century.

Traunching To Reduce Risk

Traunching is a work used to refer to the process of “splitting” or “dividing” a payment.

If the bank agrees to the “traunching” of your personal loan, then it means that it agrees to provide payment based on tranches.

Investors, banks and other lenders use the traunching mechanism to mitigate risk when providing loans or funding to a company.

By making “traunched payments” to fund a startup or grant a loan, the bank is essentially ensuring that the borrower makes proper use of the funds before being entitled to the next traunch.

For example, if a VC agrees to fund a promising startup business $1,000,000 in financing, it may divide it up in five traunches of $200,000 split up over time and payable based on the accomplishment of certain milestones or financial metrics.

Traunch vs Tranche

What is the difference between the term traunch and tranche?

The term traunch is inspired from or originates from the French term “tranche” which means a “slice”.

In French, when you say that you’d like something in slices, you’d say that you want them in “tranche”.

Traunch, which is an English term, is a finance lingo referring to “slices” of payment.

Takeaways 

How do you define traunch?

Let’s look at a summary of our findings.

Definition Traunch 

  • Traunch as a verb or adjective means something that is divided into parts or into series 
  • The term comes from the French word “tranche” which means “to cut” or “to slice”
  • In financial terms, traunch means to pay based on installments or allotment in a series of consecutive payments 
  • When a company is financed based on trauched financing, the borrower must meet certain KPIs to be entitled to the next payment allotment 
Bank financing 
Debt securities
Equity securities
Hedge fund
Mortgage-backed Securities
Personal loan
Private equity 
Securitization
Short selling 
Structured finance
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