Bridge Loan

Short-term funding used to bridge the gap between two financing rounds or before an anticipated liquidity event. Bridge loans or convertible notes are common structures, often provided by existing investors to sustain operations until the next milestone.

A loan with a specified repayment schedule and maturity date, drawn in full at inception (or in agreed instalments) and repaid through regular principal and interest payments over its term. Term loans may be amortising (with regular principal repayments) or bullet (with principal repaid in full at maturity).

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.

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 direct investment made by a limited partner alongside a private equity or venture capital fund in a specific portfolio company. Co-investments allow LPs to increase exposure to particular deals, typically at reduced or no management fees and carry, while giving the GP additional capital for larger transactions.

The legal transfer of a company's right to collect payment from its debtors to a lender or financial institution as security for a loan or as part of a receivables financing arrangement. Assignment may be by way of security (where the receivables serve as collateral) or by way of sale (as in factoring or securitisation).

A form of receivables financing in which a business sells its outstanding invoices to a third-party factor at a discount in exchange for immediate cash. The factor assumes responsibility for collecting payment from the underlying debtors and bears the credit risk in non-recourse arrangements.

The investor who takes the primary role in a financing round, typically investing the largest amount, setting the terms, negotiating the term sheet, and conducting due diligence. The lead investor often takes a board seat and serves as the main point of contact for the company.

Flat, Up or Down: Bridge Valuation Mechanics

What is the difference between convertible notes and SAFEs for startup fundraising?

Convertible notes are debt instruments with interest rates and maturity dates that convert to equity, while SAFEs are simpler equity rights with no debt characteristics, no interest accrual, and no maturity deadline.

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 a SAFE agreement and how does it work?

A SAFE (Simple Agreement for Future Equity) is a financing instrument where investors provide capital in exchange for the right to receive equity at a future priced round, typically with a valuation cap and/or discount.