There's been a massive shift in startup fundraising since 2021 - and it's been hiding in plain sight.
In the before times (pre-2020), startups raised mostly primary rounds. And when they did raise bridge funding, it was usually through a priced equity financing (with a valuation, price per share, all the normal stuff).
Those days are gone - today, most startups (especially at Seed / Series A / Series B) will raise the their bridge capital on convertible notes or SAFEs.
Look at the percentages in the bars below. The dark grey is priced bridge rounds, the bright orange is convertible note/SAFE bridge rounds.
Every year, the convertibles eat more and more share for bridges.
So what does this mean?
• Bridge round data is notoriously tricky to find and analyze, but convertible bridge rounds are even harder to lock down. More convertibles = more bridge rounds unaccounted for.
• Less valuation certainty. If a startup raised Series A at $50M post-money, but then raised a convertible note bridge round at a $60M valuation cap...what's the right valuation? Big debates among GPs, founders, and LPs on this topic.
• More cap table complexity. Convertibles (especially SAFEs) can feel "easier" to raise since they are one-off and require less legal time...but that's just upfront. Upon conversion in the next round, they can inspire headaches.
• Tale of two cities. Most bridges are done when the company is not doing so hot. They are lifelines towards the hope of another round or potentially an exit. But some are done because the company is so damn hot the initial investors want back in quickly (the "pre-emptive" bridge). Which is which?
Pros and cons to this change, but the shift is undeniable. More and more venture dollars flow through convertibles of all kinds, avoiding the traditional priced round structure.
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Peter Walker
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