Convertible vs Priced Bridge: When Each Makes Sense

Why most founders get this wrong

The most common error is choosing convertibles by default — because convertibles are faster to paper, the valuation conversation can be skipped, and existing investors are familiar with the format. The choice looks like the path of least resistance. It is rarely the right choice when the bridge is the second or third one a company has done, when convertible notes have already accreted through interest, or when the cap on the new convertible would price tightly above the previous round's post-money.

The second common error is the opposite: choosing a priced round to "send a signal of strength" without the evidence to defend the price. The priced round becomes a down round (or a flat round that reads as a down round to outsiders), the cap table re-prices, and the founder has anchored the company below where a clean convertible would have left them.

The right choice depends on three things: stage of company, depth of evidence, and how convertibles already on the cap table behave when stacked. The stage check is the most important variable; founders who try to use a convertible at Series B-extension stage and founders who try to set a priced round at angel stage both end up reversing the decision in a second negotiation that the original sequencing should have avoided.

Note: SAFEs and convertible notes are not interchangeable in the UK. SAFEs are uncommon outside the US and angel stage in the UK; convertible loan notes are the dominant pre-Series A instrument. The cap, discount and MFN mechanics work similarly, but the legal form differs and so does the accounting treatment.

SAFE vs convertible note: the UK distinction

A SAFE (Simple Agreement for Future Equity) is an equity-like instrument with no maturity date and no interest. It is common in US Seed rounds; in the UK it is increasingly used at angel stage but rarely beyond first cheque. A convertible loan note (CLN) is a debt instrument that converts to equity on a qualifying funding event. CLNs accrue interest (typically 5-8% PIK), have a maturity date (commonly 18-24 months), and convert at the earlier of the next equity round, maturity, or a defined longstop event. The choice between SAFE and CLN in a UK bridge is usually settled by what the cap table already contains — adding a SAFE to a CLN-heavy structure creates conversion-mechanic complexity that boards rarely thank the founder for.

How the cap and discount actually combine

A convertible with a £15M cap and a 20% discount converts at the better-for-the-investor of the two. If the next equity round prices at £20M post-money, the cap is the binding term and the bridge investor converts at the £15M-implied price. If the next round prices at £14M, the discount is the binding term and the bridge investor converts at £14M × 0.80 = £11.2M-implied. Founders frequently underestimate how generous a low cap actually is; partners frequently advocate for low caps because they materially de-risk the bridge investment in a flat or down next round. The negotiation point is the cap, not the discount — and the cap is set by reference to the conviction the founder has in the next round's price, not by reference to the last round's post-money.

How to apply it to your round

Run the four-stage decision sequence above, in order. Skipping the evidence check is the most common cause of mis-priced bridges; skipping the cap-table check is the most common cause of conversion-mechanic surprises eighteen months later. The decision should be documented in a one-page memo before the first instrument conversation with existing investors — without that memo, the conversation drifts to the instrument the conversation partner is most familiar with rather than the one the company needs.

If convertible. The cap is the variable that matters most. A cap set 10-15% above the last round's post-money rewards the bridge investor modestly; 20-30% rewards them substantially; 50%+ is unusual and signals a partner who believes a re-rating is imminent. The discount (typically 15-25%) is the floor protection; the MFN clause (most-favoured-nation) ensures bridge investors do not see worse terms than later-round investors of the same vintage.

If priced. The evidence pack is the variable that matters most. The asset register, the cohort waterfall, and the revised competitor comp set are the artefacts that hold the price. Without them, the priced round becomes a negotiation about a number the founder cannot defend with reference to anything other than last round's post-money — which is exactly the conversation the priced round was meant to avoid.