When the Cash Runs Out Before the Round Closes

A bridge is short-term capital that carries a company from where it is to a financing event it expects to complete. In hardware it is common, because schedules slip and a slipped schedule is burned runway. Tooling takes three weeks longer than quoted, a certification test fails, a key component goes end of life, and suddenly the seed round you were going to raise on the back of a shipping product is four months out and you have two months of cash.

The word "loan" is misleading. A bridge is almost never a bank loan. It is usually a convertible instrument taken from people who already own part of the company, and the interest rate is the least important number in it.

How a Bridge Is Actually Built

The standard structure is a convertible note or a SAFE that converts into the next priced round on terms better than the new investors get. The mechanics of both instruments, and where they differ, are covered in SAFE vs convertible note. The terms you will negotiate:

  • Size. Enough for four to nine months of runway, typically 10 to 25 percent of the round you are bridging to. Larger than that and it is an inside round with a different name.
  • Discount. 15 to 30 percent off the next round's price. Twenty percent is the common midpoint; 25 to 30 shows up when the company is genuinely distressed.
  • Valuation cap. Often the real economics. A cap at or below your last round's valuation signals that your own investors expect a flat or down round, and it can cost far more than the discount does.
  • Interest. 6 to 10 percent simple, accruing and converting into equity rather than paid in cash. On a six-month bridge this is rarely worth fighting over.
  • Maturity. 12 to 24 months. What happens at maturity if no round closed is the clause to read carefully; the default is often repayment on demand or conversion at a punitive price.
  • Most favored nation. Gives the bridge holder the best terms offered to anyone later. Cheap to give, and often what closes a reluctant existing investor.

When Bridging Is the Right Move

A bridge is correct when a specific, identifiable event will materially raise your value and it is close. The test is whether you can name the event and the date.

Good reasons: tooling is cut and first articles are eight weeks out. A certification result lands next quarter. A signed pilot converts to a purchase order in the spring. A term sheet is in diligence and will take ten more weeks than your cash allows. In each case the bridge buys a step up that exceeds its cost.

Bad reasons: you are burning more than planned and have not fixed the burn. Nobody has led your round and you are hoping momentum appears. The product does not work and the bridge funds another attempt with no changed hypothesis. Bridging into a hope rather than an event is how founders end up bridging three times, each on worse terms.

An honest sanity check: if your existing investors will not participate, that is information. Insiders have the best data on your company, and a bridge no current holder will join usually means the round is not coming.

The Risks You Are Taking On

Compounding dilution. A discount and a cap stack on top of the next round's own dilution, and the effect on your ownership is larger than the headline number suggests. Model the converted cap table, do not eyeball it. The mechanics are in pre-money vs post-money valuation, and the compounding effect across rounds in equity dilution explained.

A messy cap table. Three bridges with different caps, discounts, and maturity dates is a diligence problem. New lead investors read a stack of unconverted instruments as a warning, and cleaning it up costs legal fees and goodwill. Keep the record straight from the start, per what is a cap table.

Leverage transfer. Whoever funds the bridge knows exactly how much cash you have and when it runs out. That is the weakest negotiating position in venture, and it is why a bridge negotiated with three weeks of cash left prices so much worse than the same bridge negotiated with five months left.

Signaling. A bridge from enthusiastic insiders reads as confidence. A bridge from a single reluctant holder at a low cap reads as life support. New investors will ask who participated and on what terms, and it will be in the data room during investor due diligence.

The maturity trap. If the next round never happens, a note comes due. Most funds will not force a liquidation, but the negotiation then happens entirely on their side of the table.

Alternatives Worth Pricing First

Bridging is not the only way to buy months.

  • Cut burn. Unglamorous and immediate. A 30 percent reduction turns four months of runway into six with no dilution, and it is the first thing a new investor will ask whether you did.
  • Revenue. A paid pilot, a development contract, or an early-access batch at premium pricing is non-dilutive and improves your story at the same time.
  • Venture debt. With an institutional round behind you and predictable milestones, a debt facility can be cheaper than a discounted convertible. See venture debt for hardware startups.
  • Purchase order or inventory financing. If the gap is production working capital against confirmed orders rather than a general shortfall, this is almost always cheaper.
  • Revenue-based financing. For a company already shipping with consistent monthly sales, repayment tied to revenue avoids equity entirely; the fit and real cost are in revenue-based financing.
  • Non-dilutive grants. Too slow for an eight-week gap, but if you saw the gap two quarters out, this is what you should have started.

How to Negotiate It Well

Start early. The largest determinant of bridge terms is how much cash you have when the conversation begins. Six months out you are managing a timing question; three weeks out you are asking for a rescue.

Come with a specific plan: the amount, the exact milestone it funds, the date, and what the company looks like on the other side. Show the cut-burn scenario alongside it, so investors see you are not simply asking to keep going. And read the conversion clause with counsel before signing, because how the bridge converts, and what it converts alongside, is the part that matters years later. The clauses that come with the next round are covered in term sheet explained.

Fix the Reason You Need the Bridge

Projects House works with hardware teams on the engineering side of exactly this problem: unblocking a stalled tooling or certification milestone, cutting development burn, and building a schedule that survives contact with a factory so the next gap does not appear. Tell us where the program stalled through our contact form.