What is a Bridge Round?
A bridge round is an interim financing round that provides a startup with capital to "bridge" the gap between its current state and the next significant funding milestone. It is typically smaller than a full funding round and is meant to extend runway for a limited period.
Bridge rounds are common in the startup ecosystem and serve various purposes, from extending runway to hit key metrics to providing emergency capital when the next round is delayed.
Key Characteristics
- • Short-term: Typically provides 3-9 months of runway
- • Smaller amount: Usually 20-50% of previous round size
- • Insider round: Often from existing investors
- • Interim solution: Not a replacement for full funding
- • Specific purpose: Clear use of funds and milestone
When to Raise a Bridge Round
Bridge rounds are appropriate in specific situations. Understanding when (and when not) to raise a bridge is crucial.
Appropriate Scenarios
- Near Milestone: Close to key metrics needed for next round
- Delayed Round: Next round timing pushed but company performing
- Strategic Timing: Waiting for better market conditions
- Product Launch: Need capital to complete product before fundraising
- Strong Trajectory: Clear path to growth with incremental capital
Warning Signs (Maybe Do not Bridge)
- Pivot Needed: Business model not working - need more than time
- Falling Metrics: Growth stalling or reversing
- No Clear Path: Uncertain what milestone bridge achieves
- Multiple Bridges: Already raised bridge(s) without progress
- Founder Disagreement: Team not aligned on direction
Bridge Financing Sources
Existing Investors (Most Common)
- • Lead investor from previous round
- • All existing investors pro-rata
- • Usually quickest to close
- • May signal confidence (or concern)
New Investors (Less Common)
- • Strategic investors
- • Angels who missed previous round
- • Harder to close quickly
- • May indicate strong story
Venture Debt
- • Non-dilutive or less dilutive option
- • Requires revenue or assets
- • Interest payments required
- • Warrants typically issued
Bridge Round Structures
Convertible Note (Most Common)
Debt that converts to equity in next round. Often with discount and/or cap.
- • Fast and low-cost
- • Deferred valuation
- • Typically 12-18 month maturity
SAFE
Simple Agreement for Future Equity. Similar to convertible note but not debt.
- • No interest or maturity
- • Very fast to execute
- • Less common in India
Priced Equity
Traditional equity issuance at a set valuation.
- • Higher legal cost and time
- • Certain dilution known
- • Usually at flat or down round
Venture Debt
Loan with warrants. Non-dilutive principal.
- • Requires revenue
- • Interest payments
- • Smaller amounts typically
Typical Bridge Terms
| Term | Typical Range | Notes |
|---|---|---|
| Discount to Next Round | 10-25% | Reward for bridging |
| Valuation Cap | Same or lower than last round | Protection for bridge investors |
| Interest Rate | 6-10% | If structured as debt |
| Maturity | 12-18 months | For convertible notes |
| Warrants (venture debt) | 5-20% coverage | Based on loan amount |
Pros and Cons
Advantages
- • Extends runway to hit milestones
- • Faster than full funding round
- • Lower legal costs
- • Maintains investor confidence
- • Time to improve metrics
- • Can avoid down round
Disadvantages
- • Signaling risk if selective participation
- • Can mask underlying problems
- • Future dilution (convertible)
- • May kick the can down the road
- • Opportunity cost for investors
- • Multiple bridges can exhaust investors
Alternatives to Bridge Rounds
Cost Reduction
Extend runway by reducing burn rate: cut non-essential expenses, reduce team size, focus on core product.
Revenue Acceleration
Focus on revenue-generating activities: increase sales efforts, optimize pricing, collect receivables faster.
Strategic Partnerships
Partner with larger companies for distribution, resources, or investment without full funding round.
Grants and Competitions
Non-dilutive funding through government grants, startup competitions, or accelerator programs.
Common Pitfalls to Avoid
- Bridge to Nowhere: Raising bridge without clear milestone to achieve
- Bridge After Bridge: Multiple bridges without fundamental progress
- Punitive Terms: Accepting terms that make future funding impossible
- Selective Participation: Only some investors participating (bad signal)
- Insufficient Amount: Raising too little to reach meaningful milestone
- Ignoring Root Cause: Using bridge to avoid addressing real problems