VCs Should Stop Using SAFEs for Bridge Rounds

VCs should stop doing bridge rounds using SAFEs or Convertible Notes.

They are almost universally a waste of money.

Here's a little data to back up the conclusion:

• We looked at thousands of companies that raised a Series A round from 2019-2021.

• We then focused in on those companies that raised an extension/bridge of some kind in that group. There were 1,743 companies that raised at least some bridge capital.

• We split the bridged startups into groups based on the kind of bridge they raised: a priced round bridge or a "convertible" bridge (convertible here covers both Convertible Notes and SAFEs).

𝗥𝗲𝘀𝘂𝗹𝘁𝘀

Companies that needed a priced bridge after their Series A got to Series B 30% of the time.

Companies that raised a convertible bridge after their Series A got to Series B 3% of the time.

10x less success!

𝗪𝗵𝘆 (𝗷𝘂𝘀𝘁 𝘀𝗽𝗲𝗰𝘂𝗹𝗮𝘁𝗶𝗼𝗻)

• It might be that the companies raising SAFEs or Notes after Series A are doing so because that's the only thing they have available (and therefore are less likely to be good companies).

• It might be that because SAFE or Notes don't assign a specific valuation, they are being used in situations when the parties want to avoid a down round.

• Might be that convertibles are used by less sophisticated investors? Not sure about this one.

This is not a fun subject. Obviously if a company is needing to raise a bridge then things are probably not going to plan. A lack of bridge implies tough choices for founders, investors, and employees.

But these convertible extensions just aren't working.

#startups #fundraising #convertiblenote #bridgeround #founders