How to raise Extensions and Bridge Rounds

The Startup Help Desk

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6M ago 21:20

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In this episode we dive into raising extensions and bridge rounds. Many companies are looking to these as ways to extend their runway, but they can be complicated. How do you go about raising these kinds of rounds? We are here to help! In this episode we answer questions including:

What is the difference between an Extension and a Bridge round?
How do I talk to my investors about an Extension?
What happens if one of my investors won't participate?
How much should you raise for an Extension?

All of these questions were submitted by listeners just like you. You can submit questions for us to answer on our website TheStartupHelpdesk.com or on X/Twitter @thestartuphd - we'd love to hear from you!
Your hosts:

Sean Byrnes: General Partner, Near Horizon www.nearhorizon.vc
Ash Rust: Managing Partner, Sterling Road www.sterlingroad.com
Nic Meliones: CEO, Navi www.heynavi.com

Reminder: this is not legal advice or investment advice.
Q0: What is the difference between an Extension and a Bridge round?
Extensions and bridge rounds are the same: you’re raising a smaller amount before the next priced round, instead of an actual priced round. There are 2 reasons to do it: a position of strength or weakness. Weakness is the most common situation and you will see people use the term "bridge round" more often here. The term "extension" sounds better, so you should always use that.
When pursuing this type of round, usually you have not grown as fast you would like and thus need more time to hit the milestone needed for the next round. That time requires a little more money.
When pursuing an extension from a position of strength: you have grown very quickly, your existing investors are desperate to add more to their investment and you only need a relatively small amount to skip the next round completely.
Q1: How do I talk to my investors about an Extension?
You really don’t want this to be the first time they hear the news. Make sure you send regular monthly updates to your investors. This makes a huge difference in investors' willingness to help. Make a basic plan first, with the projections and expected outcomes: the extension should prepare you for a great priced round or liquidity event. Then, contact your friendliest folks first and build momentum.
Investors say "no" via email all the time to founders. It is important to break through the noise. Call your investors or meet them in-person to ask for their participation in the extension.
Q2: What happens if one of my investors won't participate?
This is a very common problem. Close the yeses now. A SAFE is one of the more common funding methods for this type of round. Then, you have to decouple the dependencies. Does this investor have real concerns and obstacles? Does this investor just not have the cash to allocate to the extension?
If you cannot get this investor to participate in the round, start rallying new investors. Consider alternatives such as crowdfunding, too.
Q3: How much should you raise for an Extension?
What's your next milestone? Agree on that first. Then: how much cash do you need to reach your next milestone?
Aiming for 12+ months of runway is not a bad way to frame it, but milestones are more important. Is there a critical revenue milestone that you are approaching? Is there a key growth milestone that this extension can help you achieve? Investors want their cash to be fuel for reaching major milestones. Identify the right milestone, and map out how much cash you need to reach it. With that number in hand, remember that you almost always need more funding than you think to reach a given milestone.

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