Pre-Seed, Seed, and Series A are all terms that are probably familiar to you if you have, or are looking to, raise funding for startups. Bridge funding may be a term that is less familiar, but as the name suggests it often provides crucial short-term funding for startups and more established companies, helping them to ‘bridge-the-gap’ between funding rounds and maintain their operations until they are able to secure more permanent funding, or reach their next funding milestone.
It’s a source of startup investment that I have also personally made use of.
When I founded my first startup, Seek & Adore, a curated online marketplace for designer-makers, I raised our first funding round to build the team, accelerator sales and grow revenue. This took longer than we expected and as our cash began to run out we had to look for additional funding.
The feedback we were receiving from investors was that we hadn’t hit the right revenue numbers to raise another full round of funding, so instead we had raised a bridge round to give us the runway to achieve our next set of milestones. We were lucky, as we were an online marketplace that had both customers and suppliers of the products we sold, it meant we had a large customer base – and a supplier base – we could approach to help fund us, and this is exactly what we did.
What is Bridge Funding and Why is it Important?
Bridge funding, also known as interim financing, is a type of short-term financing that helps businesses bridge the gap between different funding stages. It’s designed to provide your company with the necessary resources to keep operations running smoothly while you secure larger, long-term funding sources, such as venture capital or private equity investments.
Benefits of Bridge Funding for Businesses
Bridge funding can offer several advantages for your business:
- Maintaining Momentum: By securing bridge funding, you can maintain the momentum of your business, ensuring that critical projects and initiatives continue without interruption.
- Flexibility: Bridge funding provides you with the flexibility to navigate the often lengthy and unpredictable process of securing larger funding rounds, allowing you to adapt to changing market conditions and pivot your strategy as needed.
- Strengthening Your Position: Successful bridge funding can demonstrate to potential investors your ability to effectively manage your finances and your commitment to the long-term growth of your business.
- Avoiding Dilution: Bridge funding can help you minimize equity dilution, as it allows you to secure additional capital without immediately selling a larger stake in your company.
Exploring Different Bridge Funding Options
When it comes to bridge funding, you have several options to consider, each with its own advantages and drawbacks:
- Pre-Seed Bridge Funding: This type of bridge funding is typically used to bridge the gap between the initial idea and the development of a minimum viable product (MVP). It can come from sources such as personal savings, friends and family, or angel investors.
- Seed Bridge Funding: Seed bridge funding is designed to help businesses transition from the MVP stage to the initial stages of growth and scaling. This funding can come from angel investors, crowdfunding platforms, or small venture capital firms.
- Series A Bridge Funding: Series A bridge funding is used to bridge the gap between the seed stage and the Series A funding round, which is typically the first significant round of institutional investment. This type of bridge funding often comes from venture capital firms or strategic investors.
Those closest to your business can be a good source of funding for startups
Crowdfunding platforms have emerged as a popular option for bridge funding, as they provide entrepreneurs with the opportunity to tap into a wider pool of potential investors. By running a successful crowdfunding campaign, you can not only raise the necessary funds but also build a community of supporters who can help promote your business and provide valuable feedback.
A crowdfunding round, backed predominantly by our existing customers and suppliers, gave us the cash investment and runway needed to take us through to our next investment round. If we hadn’t had our customers and suppliers to lean on it could have been a very different story. It is worth exploring all your options if you are in need of short-term funding for startups, it’s often the case that your next source of funding comes from those closest to your business.
In a recent article I wrote for Elite Business Magazine, I discuss:
- the metrics you need to monitor so you know when to start looking for bridge funding for startups.
- the evidence you need in order to raise funding.
- who are your best first points of call to speak to about raising bridge funding.
- how you can use an Advanced Subscription Agreement (ASA) to limit the impact on valuation compared to a traditional priced funding round.
If you are a founder who has already raised funding for your startup – but you know you will need to raise more funding – it’s worth considering these four things now to make it easier to attract bridge funding should you need it in the future.
Making the Right Choice for Your Business Funding Needs
In the dynamic world of entrepreneurship, bridge funding can be a powerful tool to help your business navigate the various stages of growth and secure the necessary resources to thrive. By understanding the different bridge funding options, developing a strategic approach to securing this financing, and leveraging the benefits it can provide, you can position your business for long-term success. To learn more about how bridge funding can support your business’s growth, schedule a free workshop with our team of funding experts.
Want to learn more about startup investment?
- Funding for startups: A guide to navigating the funding journey
- Looking for funding? Here’s your step-by-step guide to finding startup investors
- Networking with startup investors: 5 tips to network successfully
Ready to start your funding journey?
- Find out how “investment ready” your start-up is by answering 20 quick questions
- Bring your funding questions to our free Funding Strategy Workshop
- Learn about our Funding Accelerator
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