Bridge Round: What It Is, Differences & When to Raise

What is a bridge round?

A bridge round is an interim funding round that sits between two larger investment rounds.

It is often used to:

• Extend runway by several months
• Reach key milestones before the next raise
• Avoid raising at a lower valuation

Bridge rounds are usually smaller and faster than full funding rounds. They focus on getting capital into the business quickly rather than negotiating a full valuation. They usually involve current investors familiar with the company, rather than new investors who would need to conduct their own due diligence, negotiate investment agreements etc.

In practice, this means a bridge round helps the company stay operational while preparing for a larger raise.

How is a bridge round different from a priced round?

A priced round is a funding round where the company’s valuation is agreed upfront and investors receive shares at that price.

A bridge round usually avoids setting a valuation. Instead, it uses instruments that convert into shares later.

What Does the Law Require?

Section 137 of the Companies Act 2014 mandates that every Irish company must have at least one director resident in the European Economic Area (EEA).

This requirement focuses on residency, not citizenship.

• Who Counts: A person resident in the EU, Iceland, Liechtenstein, or Norway.
• Residency Test: Presence in the State for 183 days or more in the preceding 12 months.

Examples:
✗ An Irish passport holder living in Australia would not satisfy the requirement.
✓ A German citizen living in Dublin would satisfy it.

The key difference is that a priced round sets the company’s value now, while a bridge round usually delays that decision until a future round.

What instruments are used in a bridge round?

Bridge rounds are usually structured using convertible instruments. These instruments convert into shares at a later date, typically during the next priced round.

Common instruments include:

• Convertible loan notes, which start as debt and convert into shares
• Simple agreements for future equity (SAFE), which convert directly into shares
• Other similar convertible arrangements

These instruments often include incentives for investors, sometimes referred to as sweeteners.

Typical sweeteners include:

• A discount on the future share price, usually around 20%
• A valuation cap, which sets a maximum valuation for conversion

In practice, this means bridge investors take more risk now and are rewarded with better terms later.

What are the risks of multiple bridge rounds?

Bridge rounds can be useful, but they can also create problems if used repeatedly.

Each bridge round adds more convertible instruments to the company’s cap table. Over time, these can stack up and become difficult to manage.

Common risks include:

• Increasing dilution when instruments convert
• Complex cap table calculations
• Investor confusion about ownership
• Reduced clarity on the company’s valuation

If several bridge rounds are raised before a priced round, the conversion mechanics can become complicated.

When is a bridge round a good idea?

A bridge round is usually sensible when it supports a clear and achievable plan.

Examples include:

• The company is close to a major milestone, such as launching a product
• The company expects improved metrics within a few months
• Market conditions make it difficult to raise a full round immediately

In these situations, a bridge round can help the company raise at a stronger valuation later.

In practice, this means a bridge round works best when it clearly leads to a better next funding round.

When is a bridge round a warning sign?

Not all bridge rounds are positive. In some cases, they signal underlying issues.

Warning signs include:

• Repeated bridge rounds without a clear plan
• Declining company performance
• Difficulty attracting new investors
• Reliance on existing investors to keep funding the business

These situations may indicate that the company is delaying a larger problem rather than solving it.

The key difference is that a strong bridge round supports growth, while a weak one delays difficult decisions.

How should founders approach a bridge round?

Founders should approach bridge rounds with a clear strategy and timeline.

Here is a practical framework to follow.

Step 1: Define the objective

Identify what the bridge round will achieve. This could be reaching a product milestone or improving key metrics.

Step 2: Set a timeline

Bridge rounds typically cover a short period, often 3 to 9 months. However, in unfavorable market conditions, bridge rounds can be used to provide cover much further beyond that.

Step 3: Choose the right instrument

Decide whether to use a convertible loan note, a simple agreement for future equity (SAFE), or another structure.

Step 4: Manage the cap table

Track all convertible instruments carefully to avoid complexity later. Terms should be consistent to avoid complications.

Step 5: Communicate with investors

Explain how the bridge round fits into the company’s overall fundraising plan.

Summary, bridge rounds help companies reach the next stage

A bridge round is a short term funding solution that helps companies raise money between larger investment rounds.

It usually uses convertible instruments and avoids setting a valuation upfront. This allows the company to raise quickly and delay valuation discussions.

Bridge rounds can be powerful when used correctly, but repeated use can create complexity and signal deeper issues.

We hope this guide has helped you understand what a bridge round is and when it makes sense to use one.