A bridge round is a short-term financing mechanism that provides a startup with capital to "bridge" the gap between its current financial position and an upcoming milestone, typically the next major funding round. This interim financing usually takes 6-18 months and helps companies avoid running out of cash while they prepare for a larger Series A, B, or C round.
Why It Matters
Bridge rounds serve as critical lifelines for startups that need additional runway but aren't quite ready for their next institutional funding round. For angel investors, these rounds often represent both opportunity and risk: they can offer favorable terms like convertible notes with discounts of 15-25% on the next round's valuation, but they also signal that a company burned through capital faster than anticipated. Understanding whether a bridge round reflects poor planning or legitimate strategic timing is essential for making sound investment decisions.
Example
A SaaS company raised a $2 million seed round in January 2023, projecting it would reach $100,000 in monthly recurring revenue (MRR) by December to justify a Series A. By October, the company hit $75,000 MRR—strong progress but short of the target. Rather than raise a Series A at a lower valuation, the founders secure a $500,000 bridge round from existing investors using a convertible note with a 20% discount. This additional capital gives them six more months to reach $120,000 MRR, strengthening their position for Series A negotiations. The bridge investors benefit from the discount, converting their $500,000 into Series A shares at a 20% lower price than new investors pay.