SeedBlink Blog

We recently hosted a webinar on bridge rounds to discuss when and why they are useful to startup founders. As a special guest, we had Jan Engels, Investment Manager at High-Tech Gründerfonds, in conversation with Ronald Rapberger, Regional Manager DACH at SeedBlink.

During the session, they covered:

• Key differences between bridge rounds and traditional funding rounds.
• What are the current market trends influencing the market?
• When to consider a bridge round?
• What are the most common scenarios for a bridge round?
• Who’s funding the bridge round, and with what instruments?
• What is the cap table impact, and how do you structure bridge rounds?
• How do you avoid dilution or conflict with future funding rounds if you raise a bridge round?

The following sections dive into four key insights shared during the session, covering the factors that drive bridge rounds and how they are structured. From understanding why bridge rounds are increasingly common in today’s market to exploring the role of instruments like convertible loans (CLAs) and SAFEs, we’ll outline the parameters investors prioritize—such as caps, discounts, interest rates, and maturities.

In today’s challenging funding environment, bridge rounds have become essential tools for startups extending their runway. With traditional equity rounds taking longer to close, bridge financing offers a flexible solution to help companies reach critical milestones.

Now, let’s explore what it takes to structure these rounds effectively!

How do bridge rounds differ from traditional funding rounds?

Bridge rounds are interim funding rounds often used to extend a company's financial runway until the next equity round. Unlike traditional funding rounds, which require setting a valuation and issuing equity to investors, bridge rounds are typically "unpriced," offering a faster and more flexible alternative.

Jan: “In general, a typical equity round, starting from seed stage and moving through Series A, B, C, and sometimes up to Series E, involves investors becoming shareholders in the company.

_In contrast, bridge rounds, often structured as convertible loan agreements (CLAs), function more like loans. Investors provide funds to the company without an immediate valuation._“

These rounds often use structures like convertible load agreements - CLAs or simple agreements for future equity - SAFEs, which allow startups to secure funds without the immediate need for a fixed valuation or extensive negotiations.

Ronald: “From our perspective bridge rounds can be seen as 'unpriced rounds,' which is a fair comparison. In the DACH region, bridge rounds are typically assumed to be convertible loan agreements (CLAs).

However, from a broader European or global perspective, there are variations, such as SAFEs (Simple Agreements for Future Equity), which are gaining traction in Western Europe, and advanced subscription agreements (ASAs), particularly common in the UK. SAFEs, originally developed by Y Combinator, are similar to CLAs but have slightly different conditions.”

For investors, bridge rounds provide interim support while deferring equity issuance to a future round. The terms often include discounts or caps on the eventual conversion to equity, incentivizing investors while protecting their upside in the next valuation.

Trends in bridge rounds and current market conditions

Bridge rounds gained visibility as a viable funding mechanism in 2023-2024, representing 60-70% of all funding rounds during this period due to challenging market conditions and reduced venture capital activity. It was largely driven by market corrections and a more challenging fundraising environment, making traditional equity rounds more difficult to close.

Jan: “The heydays are over, driven by the global economic situation, rising central bank interest rates, and broader market corrections, particularly in Europe and the DACH region. The startup and VC spaces remain closely tied to traditional financial markets, as even larger VCs need to raise their capital.

Startups that secured seed financing a year or two ago are now facing increasingly tough markets, making it difficult to raise substantial Series A rounds, especially in sectors like med-tech, where rounds can reach €10M.

_As a result, bridge rounds are becoming more common, often disguised as 'seed extensions' or 'pre-A rounds,' but fundamentally serving the same purpose—providing additional runway._”

For example, startups that previously secured seed funding rely on bridge rounds as financial lifelines to extend their runway toward a larger Series A or subsequent equity round.

Another notable trend is the evolution of key terms within bridge rounds. Shorter maturities, typically between 12 and 24 months, have replaced the longer timelines seen in previous years. It reflects investor expectations that startups should be able to secure their next financing round within a year or two. Interest rates, previously negligible in a low-interest environment, have now increased to align with rising central bank rates, often falling within the 5-7% range.

Jan: “A typical scenario involves startups nearing the end of an 18-month runway, with Series A discussions ongoing but unlikely to close in the short term.

Bridge rounds then act as Plan B, offering funding for a few months to a year, depending on the startup's traction and situation. In my active portfolio, I see this often—where companies need just two or three months to finalize a Series A, compared to others requiring 12 months of financial support.

Despite the challenges, we remain optimistic as VCs, investing in the future and looking positively toward 2025."

Key parameters in convertible loans

The terms of convertible loans have evolved in response to investor demands and market shifts. Key parameters such as discounts, valuation caps, interest rates, and maturity periods are now more standardized. Discounts provide incentives for early investors, while caps protect them from excessive valuations.

Ronald: “​​_Currently, discounts range between 20-30%, depending on the level of risk or trouble the startup faces. The valuation cap is equally important as it sets an upper limit on the conversion valuation, ensuring investors avoid overpaying. While a few years ago it was common to see convertibles without a cap, today, investors demand both a cap and a discount to secure their position._”

A cap is a double-edged sword. As Jan outlined, investors will certainly ask for it to protect themselves from dilution, but it also carries a signaling effect that founders need to consider. The cap indicates to future equity investors what the founder views as a reasonable and fair valuation, which can influence the next financing round.

Interest rates, negligible in a zero-interest environment, have risen alongside market rates. Similarly, maturities have shortened significantly, reflecting the expectation that startups will raise their next funding round within a tighter timeframe.

Ronald: “_Interest rates, historically overlooked in a zero-interest environment, have now risen in line with market conditions. Where rates once hovered around 2-3%, they now align with broader financial markets at 5-7%, making interest a more significant part of the equation._“

Lastly, maturities have shortened considerably. Previously, convertibles with terms of five years or more were not uncommon, but this has become outdated. Today, maturities typically fall between 12 and 24 months.

Ronald: “On maturities, we typically see terms between 12 and 24 months, reflecting the expectation that a financing round will occur within that timeframe. Additionally, for clarity, the interest on convertible loans is always paid in kind (PIK), not in cash.

_It means the interest accrues over time and is added to the total investment amount, then converted at the agreed cap or discount. There is no cash outflow during the loan's maturity period, an important point for founders managing their cash flow._”

Investor dynamics in bridge rounds

Bridge rounds are primarily funded by existing investors who already have a financial and strategic stake in the startup. These investors are often more willing to provide additional capital to protect their existing investment and help the company reach its next milestone.

They are often more involved in the startup's progress, team, and challenges, making them reliable partners who can bridge the gap until the next equity round. While existing investors dominate bridge funding, new investors, such as angel investors, sometimes participate, though their contributions are typically smaller.

Ronald: “At the end of the day, a bridge round is, in the vast majority of cases, funded by existing shareholders. Occasionally, small investors, such as angels, will join these rounds, willing to take the risk for a chance to invest at a lower valuation. However, their contributions are typically limited, with tickets between €50,000 and €200,000.”

Institutional investors, such as venture capital firms, prefer to participate in formal equity rather than bridge rounds. Equity rounds give institutional investors greater control, clarity, and ownership in exchange for their capital.

As temporary funding mechanisms, bridge rounds are often seen as a higher-risk option for institutional players, as they lack traditional funding rounds' structured valuation and equity commitments.

Jan: “Founders today are far more educated and aware of how convertible loan agreements (CLAs) work and their potential impact on the cap table. For example, in one of my portfolio companies, the founders deliberately limited their CLA to a maximum of €1M despite existing investors being willing to contribute €1.5M. Their rationale was clear: they understood the cumulative impact of a 20% discount and 6% interest rate over a one-year period, which effectively meant that a €1M CLA could convert to the equivalent of €1.3 million in equity.”

Stay connected!

For more insights, watch the whole SeedBlink webinar on Bridge rounds: A sign of trouble or a smart financing solution in 2025?

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