Fundraising & Equity
Definition
Short-term capital raised to 'bridge' a company to its next major funding event or milestone — typically structured as convertible debt or a SAFE when a company needs cash before closing a larger round.
Bridge financing fills the gap between a company's current cash position and its next significant capital event — which might be a priced equity round, a strategic acquisition, a revenue milestone, or in distressed cases, a restructuring. The term 'bridge' reflects the instrument's temporary nature: it is designed to be repaid or converted into equity when the larger event occurs, not to serve as a permanent part of the capital structure.
Bridge rounds are most commonly structured as convertible notes (interest-bearing debt that converts to equity at the next round) or SAFEs (equity instruments without interest or maturity dates). Key terms include the conversion discount (typically 15–25% off the price in the next round), a valuation cap (which protects bridge investors if the next round is priced high), and for notes, an interest rate (usually 4–8%) and maturity date. Bridge rounds are typically raised quickly, with minimal legal documentation, and often from existing investors who have a strong incentive to protect their existing position.
Bridge financing arises in several contexts. Most commonly, a company is close to raising a Series A or B but needs 3–6 more months of runway to hit a milestone that will significantly improve their negotiating position. Less commonly (and more fraught), a bridge is raised because the primary round has fallen through and the company needs time to find new lead investors — a scenario that can signal to the market that the company is struggling.
From an investor's perspective, a bridge from existing investors is generally viewed positively ('insiders are doubling down'), while a bridge primarily from new small investors can raise questions about why the existing backers are not participating. Founders should be thoughtful about the signal a bridge sends and how to communicate it.
A bridge round that is poorly structured — wrong discount, no cap, aggressive maturity date — can create serious problems at the next priced round. Investors in that round will scrutinize the convertible instruments and their conversion mechanics closely, and unfavorable bridge terms can create unexpected dilution, investor conflicts, or deal delays.
For founders, having a financial advisor or experienced attorney structure the bridge documents and negotiate terms with existing investors ensures the short-term cash need does not create long-term cap table problems. Understanding when to bridge versus when to cut costs is a judgment call best made with an experienced advisor who knows current market standards.