Most Bridge Rounds Don't Save Companies They Improve Marks

VC dirty secret: most bridge rounds don’t save companies, they just give VCs better marks (for the moment). But something truly new started happening last year.

Take a look at the data below. Each quarter represents a group of companies that raised their seed rounds at that time.

The percentage shows the share of seed companies in that group that have made it to Series A so far. The black dot is the percentage for seed companies going directly to Series A and the orange dot is for companies that raised a bridge round THEN got to Series A.

So clear takeaway: raising a bridge round is a negative signal for your ability to make it to the next full stage.

Kinda obvious, right? If a startup has to raise a bridge round, it's most likely because something did not go according to plan. If something went wrong, we should assume the likelihood of them continuing to grow through the venture stages decreases.

(And sure, if you add in the startups that raise a bridge and then get acquired, the percentages get just a smidge better. But not really).

So far, so good. But what is happening in the 4 cohorts highlighted in blue?

For each of those seed groups, the companies WITH bridges are outperforming the companies WITHOUT them.

For the Q4 2021 cohort, may have just been a really difficult fundraising environment where even the best companies may have needed extensions, etc. Just a quirk of the macro climate.

For the last 3 quarters in 2024...that's a new phenomenon.

That phenomenon is "pre-emption". Or said differently, certain companies today are doing so well after their fundraise that the investors are clamoring to put more money in basically immediately.

Is this an AI thing? Yup.

Is this a sign of a bubble? Probably.

But my long-held belief that bridges are negative signals is getting a solid shaking these days.

#startups #founders #bridgerounds #VC #fundraising