What is Bridge financing?

Bridge financing (or a bridge loan) is short-term funding meant to last until the company can raise capital in a larger funding round or reaches another important event, such as an IPO. It thus "bridges" a period of capital need.

How it is structured

Bridge financing often takes the form of a convertible loan: instead of setting a valuation up front, the investor lends money that later converts into shares at the next round, usually with a discount on the coming subscription price. This makes the bridge quick to execute, as the parties avoid negotiating a valuation immediately.

When it is used

Bridge loans are used when a company needs capital quickly — for example to reach the next milestone before a planned round, or to bridge a period of uncertainty. For investors it offers a chance to come in early, but also a risk if the next round is delayed or doesn't happen.

FAQs

A new share issue raises equity at a set valuation up front. Bridge financing is often a short-term loan, frequently convertible, meant to bridge the time until the next round, when it can convert into shares, usually at a discount.

A convertible lets the parties defer the valuation question to the next round, which makes the financing quick to execute. The investor often gets a discount on the coming subscription price as compensation for the early risk.

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Bridge financing