Why Are Hot Venture Rounds Getting a Second, Pricier Tranche?

Ramtin Naimi says the hottest companies now sell a second, much more expensive slice of the same round to the firms that lost the first one. A handful of firms get preferential pricing, which he calls tranche number one. Firms that lose the deal used to keep a relationship with a small check and wait for the next round. In 2021 a fast follow a couple of weeks later came in at about 2x the valuation. In the current market the losing firms do not want to wait for the next round. They ask what they have to pay to get into the financing the same day, and the price is usually not 2x. It is usually three, four, or five times the primary price, raised in tandem with the primary. He calls that slice the secondary tranche.

He does not read the second tranche as an unhealthy sign. The companies are so capital intensive that they need that amount of capital, and the founders do not want to raise all of it in the primary tranche. Sometimes Abstract is in the early tranche and sometimes it is in the second. Offers are also going out very quickly and then getting changed or pulled, which he says is reminiscent of 2021.