Bridge Round in Startup Funding

Introduction to Bridge Round in Startup Funding

When you hear about startups raising money, you might wonder how they keep growing between big funding rounds. A bridge round is a special type of funding that helps startups stay on track. It acts like a financial bridge, connecting one major investment to the next.

This article will explain what a bridge round is, why startups use it, and how it works. You will also learn about its benefits and risks, with real examples from the no-code and low-code startup world.

What Is a Bridge Round?

A bridge round is a short-term funding round that helps startups cover expenses before their next big investment. It is usually smaller than main funding rounds like Series A or B. The goal is to provide enough money to keep the company running smoothly.

Startups often use bridge rounds when they need more time to reach milestones or improve their business before raising a larger round. This funding can come from existing investors or new ones who want to support the startup’s growth.

• Typically raised as convertible notes or SAFE agreements
• Short duration, often 6 to 12 months
• Helps avoid cash flow problems
• Prepares the startup for a bigger funding round

Why Do Startups Choose Bridge Rounds?

Startups pick bridge rounds for several reasons. One common reason is to extend their runway, which means having enough money to operate until they hit important goals. This extra time can improve their valuation for the next round.

Bridge rounds also help startups stay flexible. Instead of rushing to raise a big round, they can focus on product development, customer growth, or market fit. Investors may prefer bridge rounds because they offer a chance to invest early with potential upside.

• Extends financial runway
• Improves company valuation
• Supports product or market development
• Attracts early-stage investors

How Does a Bridge Round Work?

Bridge rounds usually involve convertible securities. This means the money invested converts into shares later, often during the next big funding round. This setup is simpler and faster than a full equity round.

Here’s how it typically works:

• Startup issues convertible notes or SAFEs to investors
• Investors provide capital with terms like discount rates or valuation caps
• When the next funding round happens, the notes convert into equity
• If the next round doesn’t happen, the startup may repay the loan or renegotiate terms

Popular platforms like AngelList and Carta help startups manage these convertible instruments efficiently.

Examples of Bridge Rounds in No-Code/Low-Code Startups

No-code and low-code startups often use bridge rounds to accelerate growth. For example, a startup building a Glide app marketplace might raise a bridge round to expand its user base before a Series A.

Another example is a company using Bubble to create custom SaaS products. They may use a bridge round to hire developers and improve features, making the company more attractive to larger investors.

• Glide app marketplace expanding user acquisition
• Bubble-based SaaS startup enhancing product features
• FlutterFlow startup improving UI/UX before major funding
• Automation startups using Make or Zapier to scale operations

Benefits and Risks of Bridge Rounds

Bridge rounds offer clear benefits but also come with risks. On the plus side, they provide quick access to funds, help maintain momentum, and can improve valuation. They also allow startups to avoid rushing big funding rounds.

However, bridge rounds can dilute ownership if not managed well. They may also signal to the market that the startup is struggling to raise a full round. This perception can affect future investor confidence.

• Benefits: quick funding, extended runway, better valuation
• Risks: dilution, market perception, repayment obligations

How to Prepare for a Successful Bridge Round

To make the most of a bridge round, startups should prepare carefully. Clear communication with investors is key. Explain why you need the bridge round and how it will help reach your next goals.

Also, set realistic milestones and timelines. Use the funds to hit targets that increase your company’s value. Finally, work with legal and financial advisors to structure the round properly.

• Communicate purpose and goals clearly
• Set achievable milestones
• Choose the right convertible instrument
• Consult legal and financial experts

Conclusion

A bridge round in startup funding is a useful tool to keep your business moving forward between major investments. It provides short-term capital that helps you reach important milestones and improve your valuation.

By understanding how bridge rounds work and preparing carefully, you can use this funding method to support your startup’s growth. Whether you’re building a no-code app or a low-code platform, a bridge round can be the financial boost you need.