A bridge round is interim financing between two priced equity rounds. Done well, it buys time to hit milestones that justify a higher-valuation next round. Done poorly, it signals distress and accelerates decline.

Common bridge structures

1. Extension SAFE or note: Small SAFE at the previous round’s cap (or a new cap).
2. Price-round extension: Additional capital at the same preferred price, with no new terms.
3. Convertible note with discount: Interim loan that converts at the next priced round.
4. Insider-led bridge: Existing investors only, avoids signaling damage.

When bridges make sense

1. Product milestone is near: A key product launch in 3–6 months will materially change metrics.
2. Customer pipeline is maturing: Large deals in late-stage pipeline will close soon.
3. Fundraising timing mismatch: Market conditions require a 6-month delay.
4. Strategic M&A: Bridge funds a planned acquisition.

When bridges signal distress

1. Missed forecast badly: And no clear recovery plan.
2. Existing investors decline: If insiders won’t bridge, new investors see red flags.
3. Deeply discounted cap: Cap at or below previous round’s post-money.
4. Frequent bridge cycles: Multiple bridges in quick succession.

How to structure a clean bridge

• Keep it small: 20–40% of previous round size.
• Tie to milestones: Clear milestones before the next priced round.
• Transparent cap: Align with realistic Series A/B expectations.
• Maintain investor alignment: Insider-led reduces signaling risk.

Signaling implications

• Lead investor bridges in: Positive — shows conviction.
• Insiders participate pro-rata: Neutral — expected.
• Only outsiders bridge: Negative — insiders not supportive.
• No investors participate: Very negative — company may be winding down.

Practical takeaway

1. Founders: Be honest about whether the bridge extends a good business or delays a bad one.
2. Investors: Bridges are the cleanest signal of founder-investor alignment; skip when conviction isn’t there.
3. Operators: Communicate bridge rationale clearly to employees — ambiguity breeds attrition.

Further reading

• NVCA model documents: https://nvca.org/model-legal-documents/