Bridge Financing

Quick Definition

Short-term funding to extend runway until the next equity round or specific milestone.

What is Bridge Financing?

A bridge loan or note provides capital between funding rounds. It's designed to be temporary, typically 6-18 months, often converting into the next equity round at a discount.

When to Use Bridges

Bridge when you're close to a milestone that would improve terms, need time to close a round, or face temporary cash crunch. Don't bridge to avoid addressing fundamental problems.

Bridge Terms

Bridges often convert at 15-25% discount to next round, may have valuation caps, and sometimes include warrants. Existing investors usually provide bridges; new investors rarely do.

Formula

Common bridge terms:

• Amount: 3-12 months runway
• Discount: 15-25% to next round
• Cap: Often 10-20% premium to last round
• Interest: 5-8% (usually converts)

Example

Company needs 6 months to hit metrics for Series A.

Current runway: 2 months.

Bridge terms:

• Amount: $500K
• 20% discount to Series A
• $8M valuation cap

If Series A is at $10M, bridge converts at $8M (the cap).

Related Terms

[Most Favored Nation (MFN)
A provision guaranteeing an investor will receive terms at least as favorable as any subsequent investor receives.]

[Qualified Financing
The minimum raise amount that triggers automatic conversion of convertible notes or SAFEs.]

[Maturity Date
The deadline by which a convertible note must be repaid or converted to equity.]

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