A bridge round is a smaller raise that carries a company between two larger priced rounds, usually to extend cash on hand until a milestone is reached or market conditions improve for a full raise. Bridge rounds almost always use convertible notes or SAFEs rather than a priced equity round, since the goal is speed and a lower legal cost, with conversion into equity deferred until the next qualified financing sets a price. An extension round is closely related: it adds new money to an existing round at the same terms rather than creating a new instrument, usually because the company wants to keep one clean cap table entry instead of a separate bridge.
For an SPV pooling several investors into a bridge, the choice between a convertible note and a SAFE affects what the SPV’s investors are owed if the company does not reach a priced round, and how their eventual ownership gets calculated once one occurs.
This guide covers how bridge and extension rounds work, the difference between a convertible note and a SAFE for this purpose, and a worked example showing how a bridge instrument converts.
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Why companies raise a bridge instead of a full round
A bridge typically gets raised when a company needs more time before its next priced round, either because it has not yet hit the growth milestone investors want to see, or because the broader fundraising market has slowed and a full round would happen at a valuation the founders do not want to accept. Existing investors, including an SPV that participated in the last priced round, are often the first call, since they already know the company and can move faster than a new investor doing diligence from scratch.
Convertible note vs. SAFE for a bridge round
A convertible note is a debt instrument, so it accrues interest and carries a maturity date by which it must convert or be repaid. A SAFE, short for simple agreement for future equity, is not debt, has no interest rate and no maturity date, and simply promises equity once a triggering event, usually the next priced round, occurs. Both instruments typically include a valuation cap, a discount, or both, so early bridge investors convert at better terms than the investors who come in at the next round’s price.
| Convertible note | SAFE | |
|---|---|---|
| Legal form | Debt | Not debt, a contractual right to future equity |
| Interest | Accrues, typically added to the converting balance | None |
| Maturity date | Yes, forces a conversion or repayment decision | No fixed date |
| Priority if the company winds down | Ahead of equity, as a creditor | Generally behind creditors, ahead of common stock |
| Typical use | Bridges where investors want downside protection and a forcing date | Faster, lower cost bridges among existing SAFE holders |
Valuation caps and discounts, and why both exist
A valuation cap sets the highest company valuation at which the bridge instrument can convert, protecting early bridge investors from converting at a much higher price if the company’s value jumps before the next round. A discount, typically applied to the next round’s price per share, gives bridge investors a lower conversion price than new investors regardless of where the valuation lands. Most bridge instruments include both terms and convert at whichever produces the lower price for the bridge investor, called the more favorable of the two. See comparing pre-money and post-money SAFEs for how the cap interacts with dilution once the instrument converts.
Running a bridge round through an SPV
Pooling bridge investors into a single SPV keeps the company’s cap table clean, since the company sees one investor entry instead of a dozen individual notes or SAFEs with slightly different terms. It also gives the SPV’s own investors a single point of contact for updates and eventual distributions once the instrument converts. Because bridge rounds usually move quickly, having subscription documents and a bank account ready before the round opens matters more here than in a standard priced round; see 5 convertible note terms you need to know for the terms worth confirming before the SPV commits, and SPVs and SAFEs for how a SAFE specifically flows through the vehicle.
Most bridge SPVs raise under Regulation D, so investors generally need to meet the accredited investor standard, the same test that governs a standard priced round SPV.
What happens if the company never reaches a priced round
Both instruments typically include a provision covering what happens at maturity, for a note, or at a change of control or dissolution, for either instrument, if no priced round ever occurs. A note may convert into equity at its cap regardless of a new round, be repaid with interest, or be extended by agreement between the company and the SPV. A SAFE typically converts based on the terms written into the agreement for those specific triggering events, which is one reason SPV investors should read the actual conversion mechanics rather than assuming every SAFE behaves the same way.
A worked example of a bridge converting into equity
For example, suppose an SPV invests $500,000 into a bridge SAFE with an $8 million valuation cap and a 20 percent discount. Eighteen months later, the company raises a priced Series A at a $12 million pre money valuation, or $12 per share. Applying the 20 percent discount to that price gives a discounted price of $9.60 per share. Applying the cap instead means the SAFE converts as if the company were valued at $8 million rather than $12 million, which produces a lower price per share than the discount does in this scenario. Since the instrument converts at whichever price is lower for the investor, the SPV converts using the $8 million cap, giving its investors a larger ownership stake than either the new Series A investors or the discount alone would have provided.
Frequently asked questions
What is the difference between a bridge round and an extension round?
A bridge round typically uses a new instrument, such as a note or SAFE, to carry the company to its next priced round. An extension round adds capital to an already closed round at the same terms as the original investors, rather than introducing a new instrument.
Should an SPV use a convertible note or a SAFE for a bridge?
A convertible note fits when investors want a maturity date and creditor priority if the company does not succeed. A SAFE fits when speed and lower legal cost matter more, and the company or investors are comfortable without a fixed repayment date.
Do bridge round investors need to be accredited?
Most bridge rounds raise under the same Regulation D exemptions as a priced round, which generally means investors need to meet the accredited investor standard, though the specific requirement depends on which exemption the company and its counsel select.
How Syndicately fits
Syndicately forms the SPV for a bridge round, tracks commitments from soft commit to funded, and prepares subscription documents with e-signature so the round can close quickly once terms are set. Book a demo to see how a bridge closes faster than a standard priced round.
This article is general information, not legal, tax, or investment advice. Have counsel review the specific note or SAFE terms before your SPV commits to a bridge.
