In this context, a bridge round, also known as a bridge round, is a funding solution designed to help startups maintain momentum and continue to grow while preparing for a larger round of investment.
What is a bridge round? (Bridge Round)
Una Ronda Puente It's a intermediate funding round, which allows a startup to raise short-term capital while preparing for a larger round, such as a Series A or Series B. Its objective is Give financial oxygen in key stages of transition, when the company is not yet ready to capture a large institutional round, but needs resources to achieve new milestones.
In other words, a bridging round acts as a “financial bridge” between two phases of growth.
How does a bridge round work?
Bridge rounds are usually structured by flexible funding instruments, designed to streamline the process and avoid unnecessary complexities in early or transition stages. The main objective is to raise capital quickly, without the need to carry out an exhaustive valuation of the company at that time, but establishing clear mechanisms to convert that capital into future participation when the next institutional round closes.
One of the most common formulas is Convertible note (Convertible Note). This instrument initially acts as a loan, that is, a debt, which will be converted into equity when the startup lifts its next round of funding. To compensate for the risk assumed by bridge investors, the conversion is usually carried out with a discount on future valuation (for example, 20%) or through a valuation cap which sets a maximum on which the conversion will be calculated. In this way, the investor obtains shares on more advantageous terms than the new participants in the next round. Convertible notes can also include interest and an expiration date, although in practice many startups are looking for terms that are as simple as possible to speed up the process.
Another widely used mechanism is the SAFE (Simple Agreement for Future Equity), created by Y Combinator and increasingly used outside the United States. The SAFE also allows investors to obtain shares in a future round, but unlike the convertible note, It is not a debt instrument: it does not generate interest nor does it have a maturity. This legal simplicity makes it a very attractive option for startups looking to close a quick bridging round, especially when you have investors who already know and trust the model. Like the convertible note, the SAFE usually includes a discount and/or a valuation cap to ensure preferential conditions in the conversion.
Finally, in certain cases, especially when there are new investors who require greater formality or when the company already has stronger metrics, the bridging round can be structured as a direct capital increase. This involves issuing new shares or shares with an explicit valuation, agreed between the company and the investors. Although this type of transaction requires greater effort in legal and negotiation terms, it may be more appropriate when the startup seeks to consolidate its shareholder structure, set clear entry conditions or begin to professionalize its cap table for future, more institutional rounds.
Ultimately, the choice of one or the other instrument will depend on multiple factors: the urgency of funding, the maturity of the startup, the investor profile and the company's financial strategy. In any case, the fundamental thing is that the design of the round bridge respond to a clear logic of preparation for the next phase of growth, minimizing legal friction and maximizing alignment between founders and investors.
When does it make sense to do a bridging round?
A bridging round can be a great ally in several key scenarios for a startup:
1. Before a Series A (or other major round)
Many startups opt for a bridging round in the run-up to a Series A, B, or even a more advanced growth round. In this phase, the company usually has a validated product, initial revenues and a consolidating business model, but it still needs time to achieve the milestones that justify a higher valuation with institutional funds. A bridge round allows you to extend the runway for a few months, invest in organic growth or in the development of key metrics (such as MRR, LTV/CAC, churn or acquisition cost), and arrive at the next round with a more robust and attractive story for investors. The objective is clear: improve trading conditions and avoid unnecessary dilution.
2. Delays in the planned round
Sometimes, even with a well-defined strategy, fundraising takes longer than expected. Whether for internal reasons (such as lack of documentation, team changes or strategy adjustments) or external reasons (macroeconomic uncertainty, bear markets, longer investment cycles), startups can find themselves in a situation of cash tension. In these cases, a bridging round is a preventive and strategic measure to maintain operations, ensure the continuity of the equipment and avoid hasty decisions such as accepting funding under unfavorable conditions or executing dismissals due to lack of liquidity. It is a form of Buy time without compromising long-term vision.
3. Product or market validation
Another typical scenario is when the startup needs to carry out certain tests or investments to definitively validate the Product-Market Fit or their business model. This could be the launch of a new version of the product, a significant acquisition campaign, the opening of an additional sales channel, or even a pilot expansion to another market. Although the product already works, it is not yet validated enough to justify a Series A, and lifting it at that point could generate a suboptimal rating. In this context, the bridge round becomes a tactical tool to generate solid evidence to support a higher assessment later on.
4. Unexpected growth opportunities
In a dynamic environment such as startups, it is common for opportunities not initially contemplated in the business plan to emerge: from strategic partnerships to acquisitions, to key contracts with large accounts or tenders. Taking advantage of these opportunities requires immediate liquidity and rapid response capacity, which is often not feasible with the schedule of a traditional investment round. In these cases, a bridging round allows these initiatives to be financed without slowing down growth or losing momentum. In addition, successfully executing one of these opportunities can have a very positive effect on the narrative of the next round and on investor perception.
Benefits of a bridge round for startups
- Avoid a down round forcing a premature round with a low rating.
- Save time to achieve key milestones.
- Reduce pressure on founders and team during the fundraising process.
- Negotiating power increases looking ahead to the next round.
Risks and key aspects to consider
Although a bridging round can be a strategic solution to maintain the operability or accelerate the growth of a startup, it also involves a series of risks that must be carefully evaluated before launching it.
One of the most common risks is excessive dilution. If it is not managed properly the Valuation cap or the discount applied to convertible instruments (such as notes or SAFES), founders and current investors may end up giving up a significant percentage of the capital on less favorable terms than expected. This effect is amplified if the next round is delayed or if the resulting valuation is lower than expected. To avoid this, it is essential to model different conversion scenarios and define a structure that maintains a balance between incentives for bridge investors and protection for existing shareholders.
Another critical aspect is the dependency it generates with respect to a future round of funding. The bridging round, by definition, is not intended as a long-term solution, but rather as a temporary mechanism that anticipates the arrival of new capital. If for any reason the next round does not materialize, either due to lack of traction, changes in the market or lack of interest on the part of investors, the startup could run out of resources in an even more fragile situation than before. It is what is known as “a bridge to nowhere”. Therefore, it is key that the funds obtained are clearly aimed at achieving specific milestones that increase the chances of closing the next round under optimal conditions.
In addition, it is important to note that a bridging round can send mixed signals to the market. If it is not properly communicated, it can be perceived as a desperate measure to avoid a down round or a sign that the company has not obtained the interest necessary to raise capital under standard conditions. This can raise doubts among potential investors and affect the company's narrative in subsequent processes. The key here is to manage communication well: position the round as a strategic tool, explain its logic, and demonstrate that it responds to a well-defined growth plan and not to a lack of alternatives.
In short, launching a bridging round requires meticulous planning, realistic financial forecasts and a narrative aligned with the medium-term strategy. If done right, it can be a lever for growth. If improvised, it can create more problems than solutions.
How do you know if your startup needs a bridge round?
We recommend asking yourself these questions:
- Do I have enough runway for the next 6-9 months?
- Am I close to reaching a key milestone that will increase my rating?
- Do I have investors interested in following this interim round?
- Can I justify the use of bridge capital to future investors?
If the answer is yes, a bridge round can help you strengthen your position and gain time without compromising long-term equity.
Una Ronda Puente is a strategic funding tool which can make a difference for startups in critical growth phases. Well designed and executed, it allows you to keep moving forward without losing pace or value. But like any financial instrument, it must be used with judgment and expert guidance.
Are you thinking of launching a bridge round?
In Intelectium we help startups to structure bridging rounds that fit your business model, projections and fundraising strategy. If you are considering intermediate funding, contact us: we analyze your case and help you design the best solution. 📩 Write to us: dealflow@intelectium.com
