Bridge Rounds: When and How to Raise One

What Is a Bridge Round?

A bridge round is a smaller fundraise between major equity rounds, designed to extend a company's runway until it can reach the milestones needed for a larger raise. Bridge rounds are typically structured as convertible notes or SAFEs and range from $500K to $3M, depending on the company's burn rate and the time needed to reach the next milestone.

Bridge rounds serve a practical purpose: they provide capital when the company is not yet ready for the next priced round but cannot afford to stop operations.

When Bridge Rounds Make Sense

Bridge financing is appropriate in several scenarios:

• Near a milestone: The company is 3-6 months away from a key inflection point (product launch, revenue target, partnership) that would significantly improve Series A/B terms
• Market timing: The fundraising environment is temporarily unfavorable, and waiting 6 months could produce better terms
• Unexpected opportunity: A strategic opportunity (large customer, acquisition target, market shift) requires immediate capital
• Insider conviction: Existing investors want to provide additional capital to support the company's trajectory

Bridge Round Structure

Most bridge rounds use one of these structures:

• Convertible notes with a valuation cap at or slightly above the last round's valuation and a discount to the next round
• SAFEs with similar economics to convertible notes but without interest or maturity dates
• Extension of existing round: Some companies simply extend their last priced round on the same terms, which is the simplest approach

Key terms to negotiate include the valuation cap, discount, pro-rata rights for the bridge investors in the next round, and any information rights or governance provisions.

Who Invests in Bridge Rounds?

Bridge rounds are typically led by existing investors who have the most context on the company's progress and the strongest incentive to protect their existing investment. Bringing in new investors for a bridge can be challenging because the signal is ambiguous, it may suggest that existing investors have lost confidence (even when that is not the case).

Ideal bridge investors are those who also intend to participate in the next priced round, aligning incentives around maximizing the company's trajectory.

Risks and Market Perception

Bridge rounds carry reputation risk. Multiple bridge rounds signal that the company is struggling to meet milestones, which can make future fundraising more difficult. The market interprets bridges differently depending on context: a bridge from strong existing investors to accelerate momentum is viewed positively, while a bridge because the company could not raise a full round is viewed negatively.

To minimize negative signaling, be transparent with potential future investors about the purpose of the bridge, demonstrate clear progress since the bridge was raised, and show how the capital was deployed to achieve specific milestones.