Bridge Financing

The month a company runs out of cash and the month the next investment lands almost never line up. Runway is the number of months the cash on hand will last at the current spending rate, and once that number is down to three, starting a fundraising process is already too late. Meeting a new investor, getting through their document review, and actually receiving the wire usually takes three to four months. Payroll runs out before the negotiation ends.

The harder version of the problem is when the numbers are almost there. Opening a round means the growth an investor wants to see is already on the board, and it is common to sit two or three months short of that line while the bank balance thins out. Walk into the room now and the company gets a worse price. Wait, and there is nothing to wait on.

For a long time only three options existed at that point: take the money at a lower company value in a down round, cut people until the outflow matches what's left, or sell the company. Each one leaves a mark that lasts well past the quarter. Bridge financing was built as a fourth option. If the problem is a shortage of time, buy the time by itself.

Existing shareholders hand over enough money to reach the close of the next proper round, and the question of how much ownership that money buys is left open — it gets calculated later, against whatever valuation the next round sets.

The sequence has four steps.

1. Decide how long you need before deciding how much. The target is a number of months, not a number of dollars. If Pagedeck's net burn rate is $150,000 a month and the balance is $450,000, three months are left; adding six more takes $900,000. Net burn rate is what actually disappears in a month after money coming in.
2. Pick who puts the money in. Usually someone already on the cap table. A new investor has to study the company from scratch, which takes time, and a thin balance becomes a bargaining chip in their hands. An existing investor already has money in and loses it too if things stop here.
3. Choose the instrument. A SAFE takes the cash now without setting a valuation and works out the ownership later, using the price the next round establishes. A convertible note is structured as a loan that can turn into shares later, which means that if it never converts, it stays a debt the company has to repay.
4. Attach a reward for going first. Two terms are standard: a discount and a cap. A 20 percent discount means that when the next round prices shares at $10, the bridge money buys them at $8. A cap says that however high the next round values the company, the conversion math will not use a number above the cap. With a $30 million cap and a next round priced at $75 million, the bridge investor converts against $30 million and walks away with more than twice the ownership the headline amount suggests.

That asymmetry is the price of the instrument. Money that arrives when the risk is highest converts more cheaply than money that arrives once the risk is gone.

There are three situations where this money makes sense.

1. The numbers are slightly short of what a round requires. This is the common case. If revenue is around 70 percent of the target and closing the last 30 percent looks like six months of work, the bridge buys those six months.
2. The round is agreed but the wire is late. A company can hold a signed summary of terms and still lose two months while the investor works through the company's records. This is the version closest to the literal meaning of a bridge — small, short, and priced far less harshly.
3. An acquisition is being negotiated. Those talks run long, and a company that runs out of cash mid-process cannot hold out for a fair price.

There is one situation where it clearly doesn't belong: when the problem is not a shortage of time but a business that has no path out of losses. Six more months of the same thing put the company in the same spot with worse terms.

That's why the first document to build when considering a bridge is a financial forecast — a month-by-month projection of revenue and costs. Drop the bridge money into it and the sheet shows exactly which month the balance runs down to. If you can't write into that same sheet which numbers will move during those months and by how much, the safer answer is not to take it.

"We're a bit short this quarter, so we'll bridge for six months and then open Series B."

Going out now means accepting a price the company doesn't want, so the plan is to build more evidence first.

"Three existing shareholders are in, and we agreed to price it off the next round."

Nobody is putting a valuation on the company today; whatever the next investor decides will be used instead.

"We'll open the bridge, but show us how far revenue moves in six months first."

The condition isn't the money, it's the result the money is supposed to produce.

At Pagedeck the word first came up at a board meeting about a year after Series A. Grace put the balance and the burn rate on screen and said it reached zero in four months. An investor asked what valuation the company would get if it opened a round right then. The answer was unappealing enough that the conversation turned to a bridge.

The week that followed was spent arguing about targets rather than amounts. Mia wrote up what could realistically move in six months, Grace picked two of those numbers, and the bridge was opened with those two attached as conditions.

The most common mistake is reading a small amount as a small commitment. A bridge is often a fifth of what a full round would raise, which makes it look minor. But the pricing happens after the fact, so the ownership actually given away is large relative to the cash received. A $900,000 bridge carrying a 20 percent discount and a cap can convert into $2.25 million worth of equity at the next round. Founders who take two or three of these in a row without running that math end up with a stake too small to open another round with.

The second mistake is treating a bridge as proof that the next round is secured. More money from existing investors reads like conviction. More often it is a decision to protect what they already put in, and whether a new investor shows up is settled by the numbers produced during those six months. Companies that read it as secured tend to hire ahead of the round and then cut twice as deep when it doesn't arrive.