alt Hacker NewsIt just makes comparing funding rounds hard to understand, since money in the bank is money in the bank, and a lot of the "committed capital if you reach a milestone" is capital that would be easy to get if you reached that milestone, if it is sufficiently advanced, and has enough outs, etc., that you may as well have just raised another round in the future.
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Aurornis • yesterday at 9:46 PM
That’s logically inconsistent. If the company was performing poorly enough that they couldn’t meet their funding milestones from a previous round, they’re not going to have an easy time raising the same money in a future round.
The milestones aren’t a hard-stop that forbids the previous funding round participants from providing the money if they still choose. It’s just an out.
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Note that even that "money in the bank" of traditional venture firm is not really money in the bank. VC, PE, and hedge fund managers usually don't have all the cash for the fund sitting in the bank at all times. Rather, their agreement with the LPs that fund the fund is structured as a series of capital calls: it gives the fund the right to demand that their LPs deposit cash in their bank accounts within 10-30 days, which can then be used to fund the investments that the VC firm makes. The capital calls are backed by legal documents enforceable in court, with pretty stiff penalties for failing to meet a capital call.
Such a funding structure here isn't all that different: the funding agreement gives OpenAI the right to call on their backers to make certain cash deposits, contingent upon milestones being met. Deep down inside, "money in the bank" doesn't actually exist, it's just mutual agreements backed by force of law.