At each financing round, the investor makes a decision whether or not to invest and continue the relationship. At each tranche of a financing round, the investor has the option to stop financing, but only if the agreed milestones are not met; otherwise the investor is usually obliged to finance all tranches until the present financing round is completed.
Slicing the total amount of each financing round into smaller cash injections gives the investor more control over how the capital is allocated. The option to provide just enough cash to the company, given its development needs, enforces a more disciplined focus to reach mutually agreed upon goals.
Terms and conditions, which include estimates of company valuation, shares, and nonparticipation rights, are usually negotiated at each financing round but stay the same for each tranche, which represents only a financing fraction, payable upon completion of an agreed milestone. Cash injections may be given to a portfolio company as a bridge in anticipation of the next financing round, or on top of the financing round to maintain liquidity.