Insights
Beyond Bridge Rounds: Why Warrant-Based Financing Might Be Your Best Option
TLDR: Warrant-based deal structures preserve cash like a bridge round but without the negative signaling effects of convertible notes or the immediate dilution of priced equity, creating strategic alignment that helps startups reach their next primary round.
The data on bridge rounds from a recent Carta 2025 analysis is striking but not surprising. Looking at 1,743 companies that raised a Series A from 2019-2021 and subsequently needed an extension, they found that companies using convertible notes or SAFEs were 10x less likely to reach their next primary round compared to those using priced equity. This stark difference reflects a fundamental challenge in the startup funding ecosystem that we've witnessed firsthand.
The Bridge Round Dilemma
Both traditional bridge options come with significant drawbacks:
- Priced equity bridges require immediate dilution, often at suboptimal valuations
- Convertible bridges create debt obligations and can send negative signals to the market about your ability to raise capital
Yet many founders feel trapped between these two suboptimal choices when they need to extend runway.