TL;DR: Bridge financing is short-term capital raised to fund a company through a defined transition, typically to a next equity round, a liquidity event, or a revenue milestone. It is a timing tool, not a long-term capital solution. The right bridge buys time without creating structural problems for the next raise. Historically, bridge financing was less than 12 months in duration. However, it is increasingly used to describe funding intended to reach a specific event, and it can extend beyond 12 months.
Bridge financing fills a short term funding gap, or is specifically earmarked to help a company get to defined event like an equity funding round or the sale of the company. It is typically raised when a company needs more runway but is not yet ready, or does not want, to run a full equity process.
Common bridge scenarios include:
Bridge financing can take several forms, each with different trade-offs:
Venture debt works well as a bridge when the company has sufficient revenue to service interest and a credible path to the next capital event within the loan term. It avoids the conversion mechanics of a note and the immediate dilution of a priced round.
Bridge financing done carelessly creates downstream problems. A convertible note with a low valuation cap and a large discount can create significant dilution at conversion. A bridge that extends too long without a clear exit ramp can signal to future investors that the company struggled to raise on its own terms.
The best bridge is the minimum capital needed to reach the next milestone, structured to avoid complicating the next raise.
Is venture debt a bridge? It can be used as one, but it is often more than that. Venture debt is a full financing instrument with a 3 to 5 year term. It can bridge to a next equity round, but it also works for longer-term growth capital needs where no specific refinancing event is planned.
What is a bridge round? An informal term for a small equity or convertible financing raised between larger rounds. Usually raised from existing investors to extend runway without running a full fundraising process.
When does bridge financing create problems? When it delays a necessary equity raise rather than enabling a better one. A bridge that extends too long without a clear milestone or exit ramp can signal distress to future investors.
