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).