Bridge Financing
Short-term funding to bridge a gap until the next major financing event.
Definition
Bridge financing is any short-term funding designed to tide a company over until a larger, more permanent financing round closes. It can take the form of convertible notes, SAFEs, venture debt, or even small equity rounds. Bridge financing is typically used when a company needs cash urgently but is not ready for a full fundraise. The terms can be favorable or harsh depending on the company's bargaining position.
Why it matters
Bridge financing keeps the company alive but often comes with expensive terms (high discounts, low caps, or warrants) if the company is in a weak position. These terms create additional dilution for common stockholders when the bridge converts.
Example
A company expected to close a Series B in Q1 but the process is delayed. Existing investors provide a $2M bridge note with a 25% discount that will convert when the Series B closes. The extra discount costs employees about 5% more dilution.