Ecvc Draft Markup Bridge Loan

Skill: Draft Markup of Bridge Loan Agreement

1. Subject-matter triage

• Treat the term sheet as the controlling business framework unless a later signed instruction clearly supersedes it.
• Identify whether the draft is investor-side or company-side and mark from the company’s perspective unless instructions require otherwise.
• Separate operative business issues from drafting cleanups; the markup and memo should focus on deviations that affect economics, control, risk allocation, or closing mechanics.
• Before editing, build a deal-point checklist from the source set and map each clause in the draft to that checklist.
• If multiple notes, tranches, lenders, or convertible instruments exist, enumerate them first and analyze each one separately.

2. Failure modes the skill is correcting

• The markup fixes economics but leaves an unwanted secured package, collateral language, or filing covenant in place.
• The conversion mechanics ignore how outstanding convertibles, bridge notes, or co-converting instruments interact in the same financing.
• Financial covenants are copied too broadly and would constrain ordinary startup operations, research activity, or ordinary course spending.
• Change-of-control language sweeps in board-approved equity financings or ordinary financing steps that should not trigger a default.
• Amendment and waiver mechanics give too much power to a single lender or a minority bloc rather than holders of the required principal threshold.
• Default provisions use open-ended or subjective triggers, omit cure periods, or treat ordinary personnel changes as automatic defaults without a deal-specific reason.
• The summary memo describes issues but does not close them with business impact, document cross-references, or a concrete recommended response.
• The redline is only visible through styling and cannot be understood from exported text alone.

3. Legal frameworks / domain conventions that apply

• Security treatment must track the agreed capital structure. If the deal is unsecured, remove collateral grants, security interests, perfection covenants, control agreements, and related filing language unless the source documents clearly require secured treatment.
• A startup bridge should preserve operational flexibility. Covenant language should be narrowed to the company’s business model and typical development cadence, with carve-outs for ordinary course operations, research and development, trials, vendor commitments, and permitted financings.
• Change-of-control definitions should be tested against common financing events. A board-approved equity financing, recapitalization, or similar ordinary funding step should not be captured absent a clear deal reason.
• Majority-lender mechanics should turn on more than a majority of outstanding principal unless the term sheet or governing documents unmistakably provide a different threshold.
• Conversion provisions should specify sequencing and denominator treatment where other convertibles, preferred equity, or bridge instruments may convert in the same transaction.
• Default architecture should follow market startup practice: objective triggers, express cure periods where feasible, and narrow treatment of management departures, MAC concepts, and subjective lender discretion.
• Where legal propositions are stated in the memo, anchor them to the controlling authority or governing document provision rather than stating them as free-standing conclusions.
• If the source set contains an express rule, definition, or instruction, follow that text first and reconcile the draft to it clause by clause.

4. Analytical scaffolds

• Start with a clause-by-clause comparison of the draft against the term sheet and partner instructions.
• For each material clause, ask four questions: does it match the agreed economics, does it match the agreed risk allocation, does it match the operational reality of the business, and does it create hidden downstream issues elsewhere in the document set?
• When a provision is off-market or overbroad, propose the narrowest replacement that preserves the lender’s legitimate protection while restoring company flexibility.
• For every redline change, use a plain-text marker that survives export, and pair it with a short rationale so the change is intelligible outside Word formatting.
• For every issue in the summary memo, include the agreed position, the draft position, the deviation, the practical consequence, and the recommended fix.
• For issues that depend on multiple instruments or parties, analyze each affected instrument or party separately before drawing the final position.
• If the source documents identify a threshold, amount, maturity, consent level, or sequencing rule, test the draft against that exact point before making any editorial change.
• If a clause is acceptable only with a carve-out, state the carve-out affirmatively in the markup rather than relying on an informal note.

5. Vertical / structural / temporal relationships

• Check how the note interacts vertically with the term sheet, any side letter or partner instruction, the IRA excerpts, and any markup playbook guidance.
• Check how one clause changes another: security language can affect filing covenants; conversion language can affect capitalization mechanics; default language can affect cure and remedy provisions; lender-consent language can affect amendment power throughout the document.
• Check sequencing in time: signing, funding, interest accrual, conversion, default, amendment, maturity, and closing of any follow-on financing.
• Where a follow-on equity financing may occur before maturity, confirm that conversion, change-of-control, and covenant provisions do not inadvertently penalize the financing itself.
• Where multiple convertibles may convert in the same financing, determine the order of operations and reflect that order consistently in the operative text and the memo.

6. Output structure conventions

• Produce the redlined bridge loan agreement first, then the summary memo second.
• The redlined agreement must be a true markup, not a clean draft. Use explicit text-based change markers for every substantive edit so the change is visible even without formatting.
• Keep comments tied to the changed clause and avoid burying the business reason in a separate section.
• Use issue-oriented, industry-conventional headings in the memo rather than mirroring any hidden checklist.
• Open the memo with a short severity legend using an ordinal scale such as Critical / High / Medium / Low, and apply one severity label to each issue.
• For each memo issue, state: severity; term-sheet or instruction position; draft position; why it matters; and the recommended response.
• Where helpful, include a short cross-reference to the affected clause or related document so the reader can locate the issue quickly.
• Close the memo with a concise Recommended Actions section that assigns an action, identifies the responsible role, and ties timing to signing, markup turnaround, or the next financing milestone.
• Make sure the primary deliverable file exists, is non-empty, and contains operative redlines before treating the memo as complete.