A bridge round is a type of interim financing intended to support a company's short-term funding needs until it can secure more substantial, long-term funding. This type of funding is often necessary when a company needs additional resources to reach a key business milestone, secure a larger funding round, or navigate a temporary cash shortfall.
Bridge rounds are typically raised from existing investors, although new investors can also participate. They are usually structured as a convertible note or as convertible equity, which means the investment made during the bridge round will convert into equity during the next funding round, often at a discount to the price offered to new investors in that round.
These rounds are common in startup financing where raising capital is a staged process. The name "bridge" comes from the idea that this financing is bridging the gap between the current financial state of the company and its next step, whether that is profitability, a larger institutional funding round, or a strategic event such as a merger or acquisition.
While a bridge round can provide crucial funding at a critical time, it's also often viewed as a sign of distress. It can signal that the company has not met its previous targets or that it's struggling to attract new investors. However, in some cases, it's simply a pragmatic choice by the company to meet an unexpected opportunity or challenge.
