Bridge Financing

A short-term financing facility designed to provide temporary capital to a company or fund until permanent financing or the next funding round is secured. In the startup context, bridge loans often carry convertible terms that allow the lender to convert the outstanding balance into equity at a discount to the next round's price, compensating for the higher risk of interim financing.

A visual and analytical framework that reconciles the difference between two valuations — typically entry and exit, or book value and market value — by attributing value changes to specific drivers such as revenue growth, margin improvement, multiple expansion, and intangible asset creation. Value bridges are widely used in private equity reporting and portfolio company management.

A hybrid form of capital that combines elements of debt and equity, typically structured as subordinated debt with equity warrants or conversion features. Mezzanine financing is often used in leveraged buyouts, growth capital, and recapitalisations, and sits between senior debt and equity in the capital structure.

The contractual right of existing shareholders to participate in future funding rounds on a pro-rata basis, maintaining their ownership percentage. Pre-emption rights protect early investors from dilution and are a standard provision in shareholders' agreements.

A financing instrument developed by Y Combinator that provides investors with the right to receive equity at a future priced round, subject to a valuation cap and/or discount. SAFEs are simpler than convertible notes, carry no interest, and have no maturity date.

A form of debt financing available to venture-backed startups that supplements equity financing without requiring the dilution of additional equity rounds. Venture debt is typically structured as term loans with warrants giving the lender the right to purchase equity, and is used to extend runway, finance equipment, or bridge between funding rounds.

The difference between current assets and current liabilities, representing the short-term liquidity available to fund day-to-day operations. Effective working capital management ensures a business can meet its obligations while optimising cash flow for growth investment.

A high-net-worth individual who provides early-stage capital to startups in exchange for equity or convertible debt. Angel investors typically invest their own money and often contribute mentorship and industry connections alongside funding.

Flat, Up or Down: Bridge Valuation Mechanics

What is a bridge round?

A bridge round is short-term financing (typically SAFEs or convertible notes) that bridges the gap between current funding and the next institutional round, allowing the company to extend runway while avoiding a down round.

What is the difference between a SAFE and a convertible note?

SAFEs are simpler, cheaper, and have no maturity date or interest — they convert only at a future financing event. Convertible notes are debt with interest and a maturity date, creating pressure to convert or repay.

What is bridge financing and when do companies use it?

Bridge financing is short-term debt or convertible instruments used to fund operations between major equity rounds, typically converting to equity at the next round's valuation.