lev-os Managing Bridge Financing Decisions
Evaluates bridge round scenarios with insider dynamics, signal risk, and term structuring for existing portfolio companies.
When To Use
- A portfolio company requests bridge financing between priced rounds
- The investment team must decide whether to participate in an insider-led bridge
- Evaluating signal risk of leading or declining participation in an insider round
- Structuring convertible notes or SAFEs with appropriate protective terms for bridge capital
- Assessing pay-to-play provisions and their impact on existing investor positions
- Determining whether bridge capital extends runway to a credible value-creating milestone
Inputs To Gather
- Company financials: Current burn rate, cash runway, monthly revenue/growth trajectory, and latest cap table
- Round context: Who initiated the bridge request, proposed bridge amount, target runway extension, and any term sheet or draft terms circulated
- Investor syndicate details: Which existing investors are participating or declining, any new investor interest, and pro-rata allocation expectations
- Milestone thesis: What the company claims it will achieve with bridge capital (product launch, revenue target, hiring plan) and confidence level in hitting those milestones
- Fund position data: Current fund ownership percentage, total capital deployed into this company, remaining fund reserves, and portfolio construction constraints
- Prior round terms: Liquidation preferences, anti-dilution provisions, board composition, and any existing pay-to-play or most-favored-nation clauses [VERIFY against existing investment agreements]
Workflow
Assess company viability
- Review trailing 6-month financial performance against the plan presented at last priced round
- Evaluate whether bridge capital addresses a timing gap (positive) or a fundamental business problem (negative signal)
- Determine if management has made credible operational adjustments (headcount reductions, pivot to higher-margin segments) or is requesting bridge with no strategic change
Analyze signal risk
- If only insiders participate: assess whether absence of outside interest creates negative signaling for a future priced round
- If fund declines to participate: evaluate downstream effects on relationship, board seat, information rights, and ability to attract outside lead for next round
- Map syndicate participation matrix — identify which co-investors are in, out, or undecided, and how that shapes market perception
Model bridge economics
- Calculate effective entry price under proposed discount rate and valuation cap relative to last priced round
- Model dilution impact on existing position under conversion scenarios (up-round, flat, down-round)
- Stress-test scenarios: bridge converts at cap vs. discount, company raises at 0.5x/1.0x/1.5x of last round valuation
- Compare bridge terms to market norms for stage and sector [VERIFY current market benchmarks]
Evaluate structural terms
- Review proposed conversion mechanics: discount, cap, MFN, and automatic vs. optional conversion triggers
- Assess pay-to-play implications — does non-participation trigger conversion of preferred to common or other punitive provisions? [VERIFY against existing charter/stockholders agreement]
- Evaluate whether proposed terms include maturity date, interest rate, and default remedies appropriate to the risk profile
- Flag any super-priority liquidation preference or ratchet provisions that could impair existing stack
Make the investment committee recommendation
- Frame as one of: (a) participate at pro-rata, (b) participate at reduced allocation, (c) decline with protective measures, or (d) decline and begin managed exit process
- Quantify reserve impact against remaining fund portfolio obligations
- State the go/no-go milestone: what must the company achieve within the bridge runway to justify follow-on
Output
Produce a Bridge Financing Decision Memo containing:
- Executive summary: One-paragraph recommendation with rationale (participate / decline / conditional)
- Company status snapshot: Key metrics table (burn, runway, revenue, headcount) with trend indicators
- Signal risk assessment: Syndicate participation map and market signaling implications
- Economics analysis: Dilution table showing current ownership, post-bridge ownership, and conversion scenarios at multiple next-round valuations
- Term evaluation: Summary of proposed terms vs. market norms with flags on non-standard provisions
- Reserve impact: How participation affects fund reserve strategy and downstream follow-on capacity
- Recommendation with conditions: Specific go/no-go milestones, any term modifications to negotiate before committing, and timeline for re-evaluation
Quality Checks
- Confirm all dilution and conversion calculations tie to the actual cap table and proposed bridge terms — do not estimate share counts
- Verify pay-to-play and anti-dilution provisions against the company's certificate of incorporation, not summary descriptions [VERIFY]
- Ensure signal risk analysis accounts for all known syndicate members, not just lead investors
- Validate that runway extension assumptions use the company's actual burn rate, not management projections, unless projections are independently credible
- Check that the recommendation explicitly addresses reserve allocation constraints at the fund level
- Flag any scenario where bridge participation would cause the fund to exceed concentration limits or trigger portfolio construction policy thresholds