VC & PE Glossary
What Is Bridge Note?
Updated
Definition
A bridge note is a convertible debt instrument — usually a promissory note — that gives a startup quick cash now and converts into equity when a qualifying financing round closes.
Useful for: Founders, Investors
A bridge note is convertible debt used to fund a startup until its next priced equity round.
How it works
Instead of issuing new preferred stock immediately, the company sells a promissory note to one or more investors — often existing shareholders or the lead from the prior round. The note carries an interest rate, a maturity date, and conversion terms. When a qualifying financing closes (for example, a Series A above a minimum size), the note principal plus accrued interest converts into the same class of stock sold in that round.
Conversion economics usually include a valuation cap (maximum price per share for the note holder) and/or a discount (cheaper shares than new investors get). Some notes also have a most-favored-nation (MFN) clause that updates terms if the company sells a better note later. Maturity matters: if no round closes in time, the note may need to be repaid, renegotiated, or converted at unfavorable terms.
Why it matters
- Founders: Bridge notes delay valuation negotiations and can close in days. The tradeoff is cap-table complexity — multiple notes with different caps can create a messy conversion waterfall at the next round.
- Investors: Notes reward early support with upside protection via caps and discounts. They also let insiders double down without forcing a formal down round.
Common mistake
Stacking several bridge notes with overlapping caps and discounts, then being surprised when the Series A dilutes founders more than expected. Model the conversion before you sign the second note.
Related ideas
See also bridge loan, bridge round, SAFE, convertible note, and cap table.
Related terms
- Bridge Loan — A bridge loan is short-term financing that covers a gap until longer-term funding arrives — usually until a priced equity round closes, an acquisition completes, or permanent debt is arranged.
- Bridge Round — A bridge round is interim financing — usually convertible debt or an insider-led equity extension — raised between major priced rounds to extend runway until the company hits milestones or market conditions improve.
Common questions
Short answers for founders, LPs, and operators