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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

Related Terms

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