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

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

For deeptech founders, progress is rarely linear. You are not just building software; you are solving fundamental scientific or engineering problems. This often means the path from a successful seed round to a full Series A is longer and more unpredictable than anticipated. A critical experiment might take an extra quarter, a key material could be delayed, or a prototype may need one more iteration to unlock a massive valuation increase. This is where raising capital between rounds becomes essential.

A bridge round is not a sign of failure. When executed properly, it is a strategic injection of interim funding designed to carry your startup over a specific gap to reach a major, value-creating milestone. It is a powerful tool for extending runway in the deeptech sector, allowing you to complete the work that proves your next big leap. A successful bridge makes your subsequent priced round more successful and less dilutive. This guide explains how to raise seed funding and use bridge financing effectively for your UK deeptech startup.

Is a Bridge Round Your Best Path Forward?

Deciding to raise a bridge round requires a clear-eyed assessment of your startup’s position. It is a strategic choice that sits between two other options: pushing for a full priced round before you are truly ready, or implementing drastic cost-cutting measures that could stall vital R&D. Before committing, ask yourself and your team these critical questions:

• Is there a single, clearly defined milestone we can hit with this funding? This cannot be vague. It must be a specific technical or commercial achievement, such as completing an in-vivo study or securing a pilot with a major customer.
• Will achieving this milestone create a significant, non-linear increase in our company's valuation? The purpose of a bridge is to unlock a step change in value, justifying the dilution.
• Can we realistically achieve this milestone within the proposed timeframe? A typical bridge provides 6 to 9 months of runway, so the milestone must be achievable within that window.
• Have we explored non-dilutive options first? Ensure you have considered grants, R&D tax credits, or operational efficiencies that would not compromise your core research.

Answering yes to these questions is the foundation of a strategic bridge. This is the critical distinction between a proactive, milestone-driven round and a simple “keep the lights on” round. The latter is a reaction to a dwindling bank balance, often leading to unfavourable terms and signalling distress to the market. A strategic bridge, however, is a proactive move. It is for founders who can confidently state, “With an additional £750k, we can complete our proof-of-concept prototype, which will position us for a £20M Series A, versus the £10M round we could raise today.”

The goal is to secure enough capital to hit that milestone and begin the next fundraise from a position of strength. For this reason, a "Typical bridge round runway extension is 6-9 months." This timeline provides a realistic window to complete the technical work, gather the resulting data, and start conversations for your next major round of financing without the pressure of an imminent cash-out date.

Sizing the Bridge: From Technical Proof Point to Financial Ask

One of the most common mistakes in raising interim funding is miscalculating the amount. Asking for too little creates the risk of needing another small round, which is a very bad signal to investors. Asking for too much can make the round harder to close and may be unnecessarily dilutive. The key is not to think in terms of months, but in terms of the milestone. This disciplined approach is called milestone-based budgeting.

First, identify the single most important technical or commercial proof point you need to achieve. This could be scaling a manufacturing process, completing a clinical trial phase, or achieving a specific performance metric on a hardware prototype. Use frameworks like Technology Readiness Levels (TRLs) to anchor technical milestones, as this provides a common language for investors.

Next, build a detailed, bottom-up budget to get there. Using your accounting software, such as Xero or QuickBooks, itemise every single cost associated with hitting that goal. This is more than a line item in a spreadsheet; it is the financial story of your upcoming breakthrough. Your budget tells the story of how you will turn this new capital into a concrete value inflection point.

Consider a biotech startup in the UK developing a new therapeutic platform. Their key milestone is completing a specific preclinical animal study. Their milestone budget would look something like this:

• Direct R&D Costs: £250,000 for fees paid to the contract research organisation (CRO), the cost of specialised reagents, and logistics.
• Personnel Costs: £150,000 for the salaries of the two scientists dedicated to the project over the 6-month study period.
• Allocated Overhead: £50,000 for a portion of rent, utilities, and core software subscriptions for those 6 months.

The sum of these items gives you the Total Milestone Burn: £250k + £150k + £50k = £450,000.

This amount gets you to the finish line of the milestone. But you cannot start raising your next round the day the results come in. To avoid desperation and give yourself negotiating leverage, you need a buffer. As a rule, "The 'Next Round' buffer should be an additional 3-6 months of burn after the milestone is achieved." If the company’s all-in burn rate is £100,000 per month, a 4-month buffer is £400,000. This provides time to prepare the Series A deck, run the fundraising process, and close the round.

Therefore, the total bridge ask is £450,000 (Milestone Burn) + £400,000 (Buffer) = £850,000.

Structuring the Terms That Matter

With your financial ask defined, the next step is structuring the deal. Bridge rounds are almost always done using convertible instruments, which avoids the time and legal expense of setting a formal valuation for a priced round. These instruments are agreements where an investor provides capital that later converts into equity at the next priced round.

The two most common instruments are the Convertible Note and the SAFE (Simple Agreement for Future Equity). While SAFEs are common in the US, the UK market predominantly uses the Advance Subscription Agreement (ASA), which is structured to be compatible with SEIS/EIS tax relief schemes. Convertible Notes are also prevalent in both geographies. The key administrative difference is that a Convertible Note is technically debt (with an interest rate and maturity date), while a SAFE or ASA is not. This distinction is important; for example, you should always check Innovate UK funding rules, as some grants have clauses regarding the company taking on debt.

Two terms dictate the economics for investors: the Valuation Cap and the Discount Rate.

The Valuation Cap is a ceiling on the future valuation at which the investor’s money converts, not the company's current valuation. It protects early bridge investors from being diluted by a very high valuation in the next round. To set a fair cap, you need to anchor it to a realistic future expectation. As a guide, "Bridge round valuation caps are typically set at 60-80% of the anticipated next round valuation." So, if you realistically expect to raise your Series A at a £15M pre-money valuation, a bridge round cap between £9M and £12M would be standard.

The Discount Rate provides a secondary path to a favourable conversion. It allows the investor to convert their investment into shares at a discount to the price set by the next round. "Standard discount rates for convertible instruments are 15-25%." Investors will typically get the benefit of whichever term is more favourable to them: the price per share implied by the cap or the price per share after the discount is applied to the Series A price. Founders should model the dilution impact of different caps and discounts using a simple spreadsheet to understand how much of the company they are giving away.

Managing Investor Communications Without Signaling Weakness

How you communicate the need for a bridge round is as important as the terms themselves. Many founders struggle to convince investors to participate swiftly without signalling desperation. The key is to control the narrative. Frame the raise as an opportunity, not a survival plea.

Your communication should be proactive, confident, and anchored to the specific milestone you have defined. Start with your current major investors. They are your most likely supporters, and their participation provides a powerful signal to others. Because they are already on your cap table, they have a vested interest in helping you reach the next value inflection point. For UK-based individual investors, the availability of EIS or SEIS tax treatment on an ASA can be a compelling factor.

Your pitch is simple: “We have an opportunity to complete a critical, value-inflecting experiment in the next six months. This will significantly de-risk our Series A and position us for a much stronger valuation. We are raising a small round to get there and are offering existing investors the first chance to increase their position on favourable terms before the new round.”

This framing changes the dynamic from “we need help” to “this is a smart investment.” Transparency is crucial. Share your milestone-based budget. Show them exactly where the money is going and what tangible outcome it will produce. This builds trust and demonstrates fiscal discipline, assuring them that their capital will be used efficiently to create value.

A scenario we repeatedly see is when a major existing investor declines to participate. Do not panic. The first step is to understand why. Their reason may have nothing to do with your company’s performance; they could be at the end of their fund’s life, be over-allocated to your sector, or have an internal policy against bridge rounds. If the reason is specific to your company, listen to the feedback carefully. When speaking with other investors, be prepared to address the question honestly and without being defensive. Explain the situation factually and refocus the conversation on the investors who are participating and the milestone you are about to achieve. Momentum is built by those who say yes.

Practical Takeaways

Successfully raising a bridge round is a core skill for deeptech founders navigating long R&D cycles. It is a strategic tool for managing cash flow before a Series A and ensuring you reach your next fundraise in the strongest possible position. What founders find actually works is a pragmatic approach focused on clarity and confidence.

1. Be Strategic, Not Reactive: Only pursue a bridge if it directly enables a specific, high-value technical or commercial milestone. Avoid raising a bridge just to cover general operating expenses, as this signals poor planning.
2. Budget for the Milestone, Plus a Buffer: Calculate your ask based on the full, bottom-up cost to achieve your proof point, then add a 3-6 month runway buffer for the subsequent fundraise. This precision builds investor confidence and prevents a future cash crunch.
3. Use Standard, Founder-Friendly Terms: In the UK, stick to ASAs where possible, especially for SEIS/EIS investors. Use market-rate valuation caps (60-80% of the next anticipated round) and discounts (15-25%). Standard terms speed up the process and signal that you are a knowledgeable founder.
4. Control the Narrative: Frame the round as an exclusive opportunity for investors to get in before a significant value inflection point. Your communication strategy is as important as your financial model. You are selling momentum, not begging for a lifeline.

See the full Fundraising Stages guide for broader context on how bridge rounds fit into your company's financing journey.

Frequently Asked Questions

Q: Can we raise a bridge round from new UK deeptech investors?

A: While possible, it is often challenging. New investors must conduct full due diligence, which negates the speed advantage of a bridge. Your first priority should be existing investors who already understand your progress. If you must approach new funds, target those with a specific deeptech mandate and a reputation for moving quickly on interim financing.

Q: How does a bridge round affect our company's cap table?

A: A bridge round adds future dilution, which becomes concrete at the next priced round. The convertible notes or ASAs will convert into equity, taking a percentage of the company. It is crucial to model this dilution to understand its impact on the founders' and existing shareholders' ownership stakes before you agree to the terms.

Q: Is a bridge round using an ASA eligible for SEIS/EIS in the UK?

A: Yes, an Advance Subscription Agreement (ASA) is specifically structured to be compatible with the UK's Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS). However, traditional convertible loan notes often are not. This makes ASAs a popular choice for UK-based bridge rounds involving angel investors seeking this valuable tax relief.