Bridge Financing
Also known as Bridge Round, Bridge Loan, Bridge Note, Extension Round
Bridge financing is short-term capital raised between priced rounds to extend runway until the next major financing or liquidity event. It is usually structured as a convertible note, a SAFE, or an extension of the most recent preferred series. Pricing typically references the prior round, sometimes with a discount.
In depth
Bridge financing is a function, not a security type. The label describes when the money is raised (between major rounds, to extend runway) rather than what the paper says. Most bridges are convertible notes or SAFEs that convert at the next priced round, often with a cap referencing the prior round's valuation and a small discount to whatever round eventually prices the company. Some bridges are extensions of the most recent preferred series at the same price per share, which preserves the prior valuation and avoids resetting anti-dilution.
Insiders lead almost all bridges. The existing syndicate has the relationship, the information, and the incentive to keep the company alive long enough to reach a normal priced round. New investors typically pass because the bridge offers worse risk-adjusted economics than waiting six to nine months for the priced round.
The structure of a bridge tells the next investor what to expect. A flat-to-last-round bridge with no discount signals operational confidence. A bridge with a deep cap discount, accrued interest at a high rate, or warrant coverage signals the company is buying time on terms that future investors will scrutinize.
Why it matters
Bridges are the most common form of financing that nobody plans for. Founders building a 24-month plan after a Series A almost never anticipate the 30-month reality, and the 6-month gap gets filled by an insider bridge. The terms negotiated in that gap matter more than founders realize because they reset the floor that the next round prices off.
A discounted bridge effectively marks the company down for the priced round that follows. The next lead investor reads the bridge cap as a recent third-party valuation, and that becomes the anchor for the new term sheet.
Worked example
A Series A company raised $15M at $60M post-money 18 months ago. Cash is at 7 months of runway. The board approves a $4M insider bridge to reach a Series B with 18 months of cushion.
| Bridge structure | Cap or price | Investor signal |
|---|---|---|
| Pari passu with Series A preferred at $1.50/share | $60M post-money equivalent | Confidence in next round at $80M+ |
| Convertible note, 20% discount, $50M cap | Slight markdown | Cautious, expects modest growth in valuation |
| SAFE, $30M post-money cap | Hard down-round signal | Forces Series B lead to defend valuation above bridge cap |
The bridge that goes in determines the bridge that comes out. Founders who accept a $30M cap to fund the next 12 months should expect to defend that number across the Series B negotiation.
Frequently asked
When does a startup raise bridge financing?
When the company needs more runway to hit milestones that unlock a larger priced round, or when timing the next round to a market window. Bridges also appear before an acquisition or IPO, where the company wants to clean up the cap table or fund a final operational push.
Is bridge financing the same as an extension round?
Mostly yes in current usage. Older terminology reserved bridge financing for convertible debt and extension round for additional shares of the prior priced series at the same price. The distinction has blurred as both structures became routine between Series A and Series B in particular.
What signals does a bridge round send to future investors?
It depends on the cap and discount. A bridge at flat or premium terms to the last round signals confidence and is read as a normal runway extension. A bridge with a deep discount or a cap well below the last round price reads as a down round in disguise and triggers harder diligence at the next priced round.
Who typically leads a bridge round?
Existing investors, almost always. New investors rarely lead bridges because they would rather wait for the priced round that the bridge is buying time to reach. Existing investors fund bridges to protect their position and average down on prior cost basis.