Bridge financing
What is bridge financing?
Bridge financing is short-term capital raised to sustain a startup between two larger equity rounds. It is typically structured as a convertible note or SAFE rather than equity, with the expectation that it converts into the next priced round at a discount. Bridge rounds are most common when a company needs 3-6 more months of runway to reach a milestone that will support a clean priced round at a higher valuation.
How is bridge financing structured?
| Feature | Typical bridge note terms |
|---|---|
| Instrument | Convertible note or SAFE |
| Amount | 10-30% of the anticipated next round size |
| Discount | 15-25% discount to the next round price on conversion |
| Interest rate | 5-8% annually (convertible note only; SAFEs have no interest) |
| Maturity | 12-18 months or conversion at next qualified financing, whichever comes first |
| Who invests | Primarily existing investors exercising pro rata or demonstrating continued support |
When does bridge financing make more sense than a down round?
A bridge makes sense when: the company is 3-6 months from a clear milestone that will change its valuation story (closing a large contract, reaching ARR targets, hitting product milestones). A bridge is a bad choice when: the company needs 12+ months of runway with no clear catalyst, because the bridge just delays the dilutive round without fixing the underlying issue. In that scenario, a down round with fresh committed capital is usually the right answer.
What is the difference between an inside and outside bridge round?
A bridge round funded exclusively by existing investors carries different signals than one that includes new outside capital. An inside bridge signals that existing investors still believe in the company enough to write additional cheques without new investor validation, generally a positive signal. An outside bridge provides independent third-party validation of continued company value. The weakest signal is an inside bridge where only some existing investors participate; it signals that the non-participating investors have already written down their position and are unwilling to deploy further capital, which sophisticated observers will note.
Should founders use a SAFE or convertible note for bridge financing?
Bridges can be structured as either SAFEs or convertible notes. YC-standard SAFEs have no interest rate, no maturity date, and no repayment obligation; the investment simply converts at the next qualified financing. Convertible notes accrue interest (typically 5-8%), have a maturity date (12-18 months), and technically must be repaid if no conversion event occurs. For a bridge where the conversion path is uncertain, investors may prefer a convertible note because it gives them a repayment right if the company fails to raise the next round within the maturity period.
What do founders get wrong with bridge financing?
The most common mistake is treating a bridge as a routine step between rounds rather than a signal that the Series A process needs to be reassessed. Existing investors who offer bridge financing are making a judgement about the company's progress relative to what they expected at the last round. A bridge is not a vote of confidence; it is a decision to buy more time rather than write off the investment. Founders should understand clearly what milestone the investors expect to see before they will lead or support a priced round.
A second error is accepting bridge terms without scrutinising the discount rate and valuation cap on a convertible note. A 20 percent discount on a bridge note means the bridge investors acquire equity at a 20 percent lower price per share than Series A investors at the same round. If the bridge is large relative to the Series A raise, the effective dilution from the bridge can be significantly higher than founders expect when the note converts.
Third: bridging multiple times without a clear path to a priced round or profitability. A second or third bridge signals to the market that the company has been unable to raise a priced round after multiple attempts. Institutional investors conducting due diligence at a later stage will review the full financing history and may interpret repeated bridge financing as evidence of weak investor conviction or inability to hit milestones.
How it works in practice
Case example: Bridge financing to close a key enterprise contract
A Series A company has 4 months of runway and is in late-stage negotiation with an enterprise customer whose contract would add $600K ARR. Closing the contract before a Series B would add approximately $3M to the pre-money valuation at a 5x ARR multiple.
The company raises a $600K bridge from its Series A lead at a 20% discount to the next round price. The bridge note has 18-month maturity. The enterprise contract closes 6 weeks later.
With the new ARR on the books, the Series B closes 3 months later at a $9M pre-money (up from an estimated $6M pre-bridge). The bridge note converts at 20% discount = $7.2M effective valuation. The founder's dilution from the bridge conversion is smaller than the dilution savings from the higher Series B valuation the contract enabled.
Frequently asked questions
Is a bridge round a sign that a startup is in trouble?
Not necessarily. Many healthy companies raise bridges to extend runway and hit a specific milestone before their next priced round. It becomes a negative signal when it is the third or fourth bridge in a row, when existing investors decline to participate, or when there is no clear milestone that the bridge is enabling.
What discount rate is standard in a bridge note?
20% discount to the next round price is the most common structure. This means bridge investors receive shares at 80% of whatever the next round prices at, compensating them for the additional risk of investing earlier. Some bridges use a valuation cap instead of or in addition to a discount.
Can new investors participate in a bridge round?
Yes, though bridges are primarily funded by existing investors. Bringing new investors into a bridge can complicate the cap table and may require broader disclosure of the company's situation. Some founders keep bridges exclusively internal to avoid signalling distress to external parties.
What happens if the bridge note matures without a qualifying round?
The note becomes due and payable as debt. In practice, this triggers renegotiation, extending the maturity, converting to equity at an agreed valuation, or in distressed cases, the note holder may have the right to accelerate repayment or take control of the company.
What is a cram down in the context of a bridge round?
A cram down is a form of inside bridge where new shares are issued at a heavily discounted price as a condition of the bridge, diluting all existing shareholders including founders and prior investors who do not participate. Cram downs are aggressive and uncommon in normal market conditions, but appear in distressed situations where a lead investor provides rescue financing and uses the circumstances to reset the cap table at extremely favourable terms. Founders facing a cram down scenario should seek independent legal advice immediately.
Related glossary terms
- Down Round, the alternative to a bridge when the company needs more than 6 months of runway with no clear catalyst
- Burn Multiple, the capital efficiency metric that determines whether a bridge is buying meaningful time
- Convertible Note, the most common instrument used to structure bridge financing
Explore related Fintera content
- How to Prepare Financials for a Series A Raise, the financial preparation process that reduces the likelihood of needing a bridge before Series A
- Fractional CFO for Startups: The 2026 Playbook, how a fractional CFO models runway scenarios and advises on bridge vs down round decisions
Evaluating a bridge round and need help with the modelling?
See how Fintera models runway scenarios and bridge vs down round decisions.
See how Fintera works