Milestone financing (tranched investment) splits a committed round into instalments released against agreed achievements — a regulatory approval, a product launch, a revenue or user threshold, a key hire. The investor caps its downside by funding progress rather than promise; the company announces a bigger headline round than the cash it has actually received. The structure is most common where binary technical or regulatory risk dominates: deep tech, health tech, fintech licensing.
Everything turns on how the milestones and the obligation are drafted. Founders should insist on objective, measurable, externally verifiable milestones — a named regulatory clearance received, rather than “satisfactory clinical progress” — and on the later tranches being an investor obligation upon achievement, not an option to re-decide. The recurring failure modes: subjective milestones that hand the investor a free look; business plans that need to pivot away from a milestone that no longer makes sense (build in a waiver/amendment mechanism with supermajority investor consent); tranches priced at an original valuation that has since gone stale in either direction; and the company operating below critical mass between tranches. A milestone dispute is, functionally, a financing crisis — cure periods and fast dispute resolution belong in the documents.
Turkish structuring
Under Turkish corporate law the tranches are implemented as successive capital increases, with the funding commitment carried in the shareholders’ agreement: the investor undertakes to subscribe to a defined increase at a defined price upon milestone achievement. Because a Turkish anonim şirket cannot hold open “committed but unissued” preferred the way a Delaware company can, the SHA’s subscription covenant — backed by cezai şart and, in well-built deals, by call-option mechanics over founder shares in case of default — is the enforcement spine. Conditions precedent should mirror the milestone list exactly; daylight between the two is where disputes live.
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