VC Minute – quick advice to help startup founders fundraise better.
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The other element of how a bridge round is working against you, is not having enough capital to hit your milestones to get to the next stage.
The very nature of raising a round bridge speaks to the fact that you did not hit the metrics that you thought you would.
Things did not go according to plan, and things never go according to plan. That is understandable. Maybe you haven’t found a product market fit. You made a pivot, a bad hire, or any number of other things that can and do go wrong when building a startup.
However, it is a negative signal if you did not see this coming far enough in advance in order to make the changes that you needed to make, to stretch your runway, and keep your business alive.
When you have limited runway left, that is another piece of market information that tells me about how you run your business.
To be fair, running out of money is part of the plan. It’s called a runway and not a highway because you’re expected to take flight before it ends. which means you should know when it’s ending and be planning for your next raise far enough in advance so that you don’t crash at the end of it.
Whatever the situation, the story of a bridge round is always the same from an investor’s perspective. You raised money. It wasn’t enough. And now you’re coming back to raise even less money…
If you say, “I only need half a million dollars and then I can hit a million of ARR,” you got it wrong before; why would I believe you’re going to get it right this time?
Raising less capital is an even worse position to be in.
Remember last season, when I talked about the VC Treadmill? I said that it only gets steeper and faster. The way to structure a round is to raise enough capital to get from here to there; to reach the metrics that will enable you to raise the next round and level up on the VC treadmill.
I need to believe that with this round, you are truly going to hit those metrics and are finally going to break through to the next level.
That is extremely hard to buy into as a new investor coming into this round with no historical context.
This is why you need to structure an insider round and not a bridge round. and we’ll talk about that tomorrow.
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