What Are Bridge Rounds?

published on 27 July 2025

Bridge rounds are short-term funding solutions for startups that need capital to bridge the gap between major investment rounds. These rounds typically use convertible notes or SAFEs (Simple Agreements for Future Equity), allowing startups to delay valuation discussions until the next funding event. Investors benefit from discounts (15%-25%) and favorable terms, while startups gain extra time to hit milestones, such as increasing revenue, completing product development, or expanding to new markets.

Key Points:

  • Purpose: Extend cash runway, achieve milestones, or handle unexpected challenges.
  • Structure: Usually involves convertible notes or SAFEs with deferred valuation.
  • Terms: Includes discount rates, valuation caps, and conversion triggers.
  • Risks: Over-reliance can lead to lower valuations or postponed issues.
  • Best Use: When startups are on track and need time to strengthen their position before a larger funding round.

Bridge rounds are not a sign of failure but a tool to maintain momentum if used wisely. Success depends on clear goals, transparent communication with investors, and sound financial planning.

What Is a Bridge Round? with Peter Harris

When Startups Use Bridge Rounds

Startups often turn to bridge rounds for specific reasons. Knowing when and why to pursue this type of funding can help founders decide if it fits their goals. Below are some common scenarios where bridge rounds can support a startup's growth strategy.

Extending Cash Runway

Bridge rounds are often used to extend a startup's cash runway. This gives companies extra time to build momentum and prepare for their next major funding round. It’s an approach that works best for startups showing strong progress but needing a bit more time to hit their stride. In this context, bridge funding acts as an offensive tool - a way to buy time to achieve critical milestones, rather than a last-ditch effort to keep a struggling company afloat.

Reaching Key Milestones

Securing a bridge round can also help startups achieve specific goals that make them more attractive to future investors. These funds might be used to:

  • Complete product development.
  • Hit revenue or sales targets.
  • Grow the customer base.
  • Expand into new markets.

For example, a startup may aim to reach $100,000 in monthly recurring revenue, launch a new product feature, or break into a new geographic region. The key here is having a clear, measurable plan that shows how the bridge funding will drive these improvements and set the stage for a successful next round.

Handling Unexpected Challenges

Sometimes, unforeseen challenges disrupt a startup's plans. These could include market downturns, regulatory hurdles, supply chain issues, or delays in closing a larger investment. In such cases, a bridge round can be a lifeline, giving the company enough breathing room to navigate tough conditions without locking in unfavorable terms during a full funding round.

That said, relying on bridge rounds to handle setbacks comes with risks. Overusing them can lead to lower valuations or even force founders into difficult exits. It’s crucial to evaluate whether bridge funding will genuinely solve the problem or just delay addressing deeper issues. Founders should approach this option with a clear understanding of its long-term impact on the business.

How Bridge Rounds Are Structured

Bridge rounds rely on straightforward financial tools designed to provide quick funding without immediately determining a company's valuation.

Financial Instruments Used

Bridge rounds primarily utilize convertible notes and SAFEs (Simple Agreements for Future Equity) as funding mechanisms. These tools allow startups to secure capital without the need to finalize a valuation upfront.

  • Convertible Notes: These are short-term loans that convert into equity during a future financing event. They come with a maturity date and may accrue interest. If no qualified financing occurs by the maturity date, investors could request repayment along with any accumulated interest.
  • SAFEs: SAFEs give investors the right to obtain equity during a future financing event. Unlike convertible notes, they do not include a maturity date or accrue interest, which reduces the pressure on startups to raise follow-on funding within a specific timeframe.

Once a financial instrument is selected, establishing clear terms and conditions is essential to ensure fair treatment for both founders and investors.

Terms and Conditions

Bridge round terms are often more favorable to founders compared to traditional equity rounds. For instance, the median dilution in bridge rounds can be as low as 10.4% at the seed stage and 3.3% at later stages.

Key terms include:

  • Conversion Trigger: The event that activates the conversion of the instrument into equity, typically when the startup raises a qualified financing round.
  • Valuation Cap: A limit on the company valuation used for conversion, which helps control dilution for founders.
  • Conversion Discount: A feature that ensures investors receive equity at a discounted valuation during the conversion.

Both convertible notes and SAFEs often include these features, offering investors protection while maintaining flexibility for startups.

Feature Convertible Notes SAFEs
Maturity Date Present Not applicable
Interest Rate May accrue interest Typically none
Investor Protection Repayment option if no qualified round No repayment option
Conversion Trigger Converts on future financing event Converts on future financing event
Complexity More complex legal structure Simpler documentation

How They Differ from Equity Rounds

Bridge rounds differ significantly from traditional equity rounds in structure and execution. Equity rounds often involve extensive due diligence, detailed term sheets, and complex legal agreements. In contrast, bridge rounds are typically quicker and more straightforward, relying on standardized agreements like convertible notes or SAFEs.

Another key difference is the level of investor rights. Bridge round investors generally do not receive board seats, voting rights, or extensive protective provisions. This simplified approach reduces legal complexity and speeds up the funding process.

Pros and Cons of Bridge Rounds

Bridge rounds can provide startups with quick access to funding, but they also come with risks that could affect long-term success. For founders, understanding both the benefits and potential downsides is essential when deciding if this type of financing aligns with their goals.

Benefits vs. Drawbacks

Bridge rounds come with both opportunities and challenges:

Advantages Risks/Drawbacks
Quick access to capital – Offers a fast solution for urgent cash flow needs. Reduced chance of high-value exits – Can lead to acquihires or even shutdowns.
Valuation flexibility – Delays difficult valuation discussions until after achieving key milestones. Difficulty securing follow-on funding – Lack of a strong lead investor can complicate future rounds.
Extended runway – Provides startups with more time to reach milestones and improve performance metrics. Delaying the inevitable – Extra funding may only postpone an unavoidable shutdown.

Running out of cash remains the top reason for startup failures, responsible for about 29% of closures. To navigate the risks and rewards of bridge rounds effectively, founders need a strategic approach.

How to Reduce Risks

Minimizing the risks of bridge rounds is just as important as taking advantage of their benefits. Success often depends on careful planning and clear communication. Instead of using bridge funding as a last resort, it’s more effective when leveraged during periods of growth and strong performance. Here’s how to mitigate risks:

  • Set clear milestones. Make sure your goals and traction are well-defined before seeking bridge financing.
  • Keep financial reporting airtight. Tools like Lucid Financials can provide real-time insights and generate investor-ready reports, keeping stakeholders informed.
  • Plan for the next step. Develop a solid strategy for follow-on funding to avoid being stuck after the bridge round.
  • Negotiate terms wisely. Work with legal experts to ensure terms like conversion triggers, valuation caps, and discount rates align with your long-term objectives.
  • Communicate openly with investors. Regular updates on progress and challenges can build trust and maintain investor confidence.

Bridge rounds are not a one-size-fits-all solution. If key metrics are stagnant or declining, or if there’s no clear path to future funding, founders should think twice. In such cases, it’s worth asking whether bridge financing addresses the root problems - or simply delays them.

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Best Practices for Bridge Rounds

Adopting effective strategies can help founders navigate bridge rounds while keeping their long-term business goals in focus. These methods not only improve the likelihood of success but also foster stronger relationships with investors.

Communicating with Investors

Consistent and clear communication with investors is crucial during a bridge round. Reaching out only during emergencies can erode trust, so it’s better to maintain regular updates. Short, periodic updates - whether monthly or quarterly - can keep investors informed about progress, challenges, and key metrics.

Being transparent, even when delivering difficult news, builds credibility. For instance, sharing challenges early allows investors to provide advice or resources before issues escalate. Proactively seeking their input demonstrates openness and strengthens the relationship. These habits also lay the groundwork for clear and reliable financial reporting, which is discussed in the next section.

Keeping Financial Records Current

Accurate and up-to-date financial records are a cornerstone of investor confidence. When your financial data is reliable, bridge round negotiations tend to proceed more smoothly and often result in better terms.

Having real-time financial insights is critical. Investors need to see clear data on cash flow, burn rate, and runway projections to make informed decisions. Tools like Lucid Financials offer automated updates and forecasting, minimizing errors and providing board-ready reports quickly. This automation frees up time for founders to focus on strategic conversations rather than reconciling discrepancies.

Matching Terms with Long-Term Plans

Once communication and financial transparency are in place, the next step is ensuring that bridge round terms align with your long-term goals. Misaligned terms can create complications in future funding rounds, so careful planning is essential.

Valuation caps require thoughtful consideration. As Amit Garg explains, "By raising the convertible you skip the question of down, flat or up round. But like any other convertible, the cap acts as a proxy for valuation -- a high cap (or no cap) signals your expectations for the next round". Setting realistic caps that reflect achievable growth avoids constraining future fundraising efforts.

Key terms like valuation caps, discount rates, prorata rights, and liquidation preferences should all align with your broader growth strategy. It’s also important to document how bridge notes will convert under different scenarios, ensuring clarity for all parties. Collaborating with experienced legal counsel can help structure bridge terms effectively and avoid conflicts with future funding agreements.

Conclusion

In this article, we examined how bridge rounds can extend runway, secure critical milestones, and support growth when approached with clear goals. Whether it's gaining extra time to achieve product milestones, navigating short-term market challenges, or positioning for better terms in the next funding round, bridge rounds can be an effective tool. However, they work best when used proactively during periods of growth rather than as last-minute fixes.

The funding landscape today underscores the relevance of bridge rounds. According to Carta data, 20% of all venture rounds in 2025 were down rounds - double the historical average. With funding cycles stretching beyond the traditional 18–24 months, many startups are turning to interim financing as a way to reach key milestones.

In this environment, strong financial management becomes essential. Having real-time insights into cash flow, burn rate, and runway allows founders to make informed decisions about timing and structure. Tools like Lucid Financials provide automated insights and investor-ready reports, helping founders focus on strategy instead of spending time reconciling financial data.

When paired with strategic planning and sound financial oversight, bridge rounds can transform short-term obstacles into opportunities for growth. Success relies on careful preparation, clear communication, and a solid financial foundation to guide decision-making throughout the process.

FAQs

What makes bridge rounds different from traditional equity funding rounds?

Bridge rounds are a quick way for startups to secure short-term funding, helping them "bridge" the gap between larger fundraising efforts. Unlike traditional equity rounds, which often involve lengthy negotiations over investor rights and governance, bridge rounds are designed to be simpler and more straightforward.

This simplicity speeds up the process, making it easier for startups to access the funds they need without getting bogged down in legal complexities. It’s an efficient option for companies looking to stay on track while gearing up for their next big funding milestone.

What risks do startups face if they rely too heavily on bridge rounds for funding?

Relying heavily on bridge rounds can bring serious hurdles for startups. One major issue is ownership dilution - raising additional funds often means giving up more equity, which can chip away at the founders' control of their company.

Another concern is the challenge of securing future funding. Investors might see repeated bridge rounds as a red flag, signaling financial trouble or an inability to hit critical milestones. This perception can weaken investor trust and make it tougher to attract long-term supporters.

On top of that, startups may encounter heightened pressure from investors. Bridge rounds are often seen as stopgap measures, and without a clear strategy for growth or profitability, this pressure can distract from focusing on sustainable scaling and innovation.

How can startups build trust and maintain transparency with investors during a bridge round?

Building Trust During a Bridge Round

When navigating a bridge round, earning and keeping investors' trust hinges on open and consistent communication. Startups should clearly explain why the round is necessary - whether it’s to meet immediate funding needs or to hit specific milestones - and share realistic updates on progress and goals.

It’s crucial to be upfront about any challenges the company is facing and how the funds from the bridge round will address them. Provide detailed financial updates, highlight key performance indicators, and outline any shifts in strategy. This level of transparency not only boosts investor confidence but also helps nurture long-term relationships, paving the way for future opportunities.

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