Bridge Rounds for Deeptech Startups: When to Raise and How to Structure

Is a Bridge Round Your Best Path Forward?

For a deeptech founder, the gap between a promising prototype and a commercially viable product can feel like a chasm. Your team is making real progress, but the research and development timeline is stretching, and your cash runway is shrinking. You are tantalizingly close to a critical technical proof point, an achievement that will dramatically de-risk the venture and unlock a significant valuation step-up for your next priced round. This is the milestone gap, and learning how to use bridge financing for deeptech startups is a common, strategic necessity.

Raising interim funding for startups in this position is not a sign of failure. A well-timed bridge round is a specific tool for extending runway in deeptech, designed to finance the final push to a value-inflecting milestone. It positions you for a successful Series A or B round from a position of strength, not desperation. This guide provides context on structuring these rounds effectively. For a broader overview, see the Fundraising Stages guide.

A bridge round should be a deliberate, strategic choice, not a last-ditch effort to keep the lights on. The critical distinction is purpose. A strategic bridge is raised to accomplish a specific, achievable goal that measurably increases the company’s value. In contrast, a bridge raised simply to cover payroll for a few more months without a clear objective signals distress to investors and can harm your reputation. Before seeking this kind of capital between rounds, carefully consider the alternatives.

You could push for a full priced round now, but without your key technical milestone completed, you risk a lower valuation and tougher terms. Alternatively, you could implement drastic cost-cutting measures. However, for a deeptech company, this often means slowing down R&D, potentially losing momentum and key talent, and delaying the very breakthrough you need. The right time for a bridge is when you can confidently answer "yes" to three questions:

1. Do we have a clearly defined technical or commercial milestone? This needs to be specific, such as achieving a certain level of efficiency in a hardware prototype or completing a key preclinical study.
2. Is this milestone realistically achievable within a 6-to-9-month timeframe? The timeline must be credible and backed by a detailed project plan.
3. Will achieving this milestone substantially de-risk the company and make it more attractive for a subsequent, larger funding round? The outcome should create a clear step-change in your company's value proposition.

If the answer to all three is yes, a bridge round is likely your most effective path forward. It is a targeted injection of capital to complete a specific job, a core component of many successful deeptech investment strategies.

Sizing the Bridge: From Technical Proof Point to Financial Ask

One of the most common mistakes founders make is sizing their bridge based on a generic number of months. A more precise and compelling approach is to build the financial ask directly from the milestone you plan to achieve. This shifts the conversation from "we need cash to survive" to "we need this investment to create specific value." Your first step is to calculate the direct cost of hitting that milestone, which requires a detailed, bottom-up budget.

In your spreadsheets, pulling data from your payroll provider and accounting software like QuickBooks for US companies or Xero in the UK, list every expense required. This includes salaries for the essential R&D team, material costs, specialized equipment rentals, and any third-party contractor fees. The reality for most deeptech startups is more pragmatic: focus only on the costs essential to the milestone. Successful bridge rounds typically extend runway by 6-9 months to complete a critical milestone.

Let’s consider an example of technical milestone financing for a UK-based biotech startup developing a new drug discovery platform. Their milestone is to validate the platform against a known cancer pathway. Their milestone-specific budget might look like this:

• Personnel Costs (8 months): Lead Scientist, 2x Research Associates = £200,000
• Lab Consumables & Reagents: £150,000
• Third-Party Assay Services: £75,000
• Overheads (allocated portion of rent, utilities): £50,000
• Milestone Subtotal: £475,000

However, the financial ask does not stop there. Once the milestone is hit, you need time to actually raise the next priced round. Fundraising always takes longer than anticipated. Therefore, you must add a buffer to your ask to cover this period. The fundraising buffer added to a bridge round ask should cover an additional 3-6 months of burn after the milestone is achieved. If the startup's total monthly burn rate is £80,000, a conservative 4-month buffer adds £320,000 to the total.

• Total Bridge Ask: £475,000 (Milestone) + £320,000 (Buffer) = £795,000

This milestone-driven calculation provides investors with a clear, justifiable plan for how you will use their capital to generate a significant return on their investment by de-risking the company for its next major financing.

Structuring the Terms That Matter

Once you know how much you need, the next step is structuring the deal. For bridge rounds, this is typically done using a convertible instrument to avoid the time and legal costs of a priced round. The two most common are the Convertible Note and the SAFE (Simple Agreement for Future Equity). While functionally similar, their prevalence differs geographically. In practice, we see that the SAFE is overwhelmingly preferred in the USA, while the Convertible Note has a longer history and is still common in the UK and Europe.

Both instruments convert into equity at the next priced round, but they reward bridge investors for their early risk through two key terms: the discount rate and the valuation cap. The discount rate gives investors a percentage discount on the share price of the next round. The valuation cap sets a maximum valuation at which the bridge investment converts into equity. Investors receive equity based on the calculation that is *more favorable* to them. It is crucial to understand that a valuation cap is not the company's current valuation; it is a protective ceiling for the investor.

Negotiating these terms requires an understanding of market standards. For example, standard discount rates on convertible notes or SAFEs are 15-25%. At the same time, bridge round valuation caps are typically set at 60-80% of the anticipated next priced round valuation. If you plan to raise your Series A at a $20 million pre-money valuation, a bridge cap between $12 million and $16 million is a reasonable starting point for negotiations.

To illustrate the impact, consider a $500,000 bridge investment followed by a Series A raise at a $20 million pre-money valuation. If the bridge investors have a 20% discount and a $12 million valuation cap, they will convert at the $12 million cap because it yields more equity than the 20% discount on the $20 million valuation. The cap provides significantly more upside protection for the investor in a successful outcome, making it a critical point of negotiation. For more detail on the mechanics, Cooley GO offers a practical primer on convertible debt.

Managing Investor Communications Without Signaling Weakness

How you communicate the need for interim funding is just as important as the terms themselves. The goal is to project confidence and strategic foresight, not desperation. Avoid starting the conversation with "we're running out of money." Instead, frame the bridge round as an offensive move to unlock a specific opportunity and improve your options for prototype funding.

Your narrative should be proactive and milestone-focused. What founders find actually works is leading the conversation with the achievement that is just within reach. Start by approaching your existing investors first. They are already familiar with your progress and vision. Their participation creates crucial momentum and social proof that will make it easier to bring in new investors if needed. A scenario we repeatedly see is insiders quickly committing to their pro-rata share, or more, which validates the plan for others.

Your pitch should be simple, direct, and built on four key points:

1. Progress: Briefly recap the significant progress made since the last round. Highlight key data and team achievements.
2. The Milestone: Clearly define the technical or commercial milestone you will achieve with the funds. Explain precisely why it is a major value inflection point.
3. The Plan: Present your milestone-based budget and timeline. Show exactly how the capital gets you to the goal and through the subsequent fundraise.
4. The Ask: State the total amount you are raising and the proposed terms, including the valuation cap and discount rate.

This approach reframes the discussion from managing cash flow pre-Series A to seizing a strategic opportunity for de-risking the venture. It tells investors you have a clear plan, not just a cash flow problem. When preparing, consult resources like the SEC guidance on exempt offerings to ensure securities compliance.

Practical Takeaways for Your Deeptech Bridge Round

Navigating a bridge round successfully comes down to strategy, precision, and communication. As you consider how to use bridge financing for your deeptech startup, keep these core principles in mind. First, frame the round strategically. This is not just about extending runway; it is a targeted investment to cross a specific "value chasm" by hitting a critical technical proof point.

Second, size your ask with precision. Build a bottom-up budget for the direct costs of achieving your milestone over 6-9 months, then add a 3-6 month buffer to give yourself time to execute your next priced round from a position of strength. Third, understand the key terms. Whether using a SAFE in the US or a Convertible Note in the UK, be prepared to negotiate a valuation cap and discount rate that are fair to early investors while protecting your equity. Use industry benchmarks as your guide.

Finally, communicate with confidence. Lead with the opportunity, not the cash need. Secure your insiders first to build momentum, and present a clear, milestone-driven plan that demonstrates you are in control of your company's destiny. Refer to the Fundraising Stages guide for the full lifecycle context.

Frequently Asked Questions

Q: What is the difference between a bridge round and a seed extension?

A: A bridge round is specifically designed to finance a company to a significant, value-inflecting milestone before a larger priced round (like a Series A). A seed extension is typically a smaller raise that extends the runway of a seed-stage company to achieve more traction or market validation, often without a single, major technical de-risking event as the goal.

Q: Should I bring new investors into a bridge round?

A: It is best practice to start with your existing investors. Their participation provides strong social proof. If they cannot fill the entire round, bringing in new strategic investors can be beneficial, but be prepared for them to conduct more extensive due diligence, which can slow down the process.

Q: How much dilution should I expect from a bridge round?

A: Dilution from a bridge round is not realized until the next priced round when the convertible instrument converts to equity. The amount depends on the size of the bridge, its valuation cap and discount, and the valuation of the next round. Typically, founders aim to keep bridge round dilution in the 5-10% range.

Q: What happens if we cannot raise a priced round after the bridge?

A: This is a significant risk. Most convertible notes have a maturity date. If you cannot raise a priced round by then, the noteholders may have the right to convert their debt to equity at a very low, pre-negotiated valuation, or even demand repayment. This makes hitting your milestone and managing your process critical.