Most startups don’t have a clean run from their pre-seed round through an IPO when it comes to fundraising. Quickly growing tech companies sometimes pause at certain stages, raising a little extra cash against their prior round’s terms, for example.
This becomes especially true when the economy changes for the worse and startups are incentivized to raise an extension round, or bridge round. Why are those rounds potentially more popular in lesser macroeconomic periods? Because if startups can purchase a bit more time to grow before raising their next priced round, they may be able to better defend their most recent valuation, or perhaps even surpass it when they formally raise.
Data from Carta, a software service that supports companies’ cap tables and the like, indicate that bridge rounds — “a type of interim financing that companies may choose while they wait for a larger fundraise,” in its own language — are rising in popularity, as TechCrunch expected given our reporting on the matter. However, where the funding varietal is gaining the most popularity was slightly surprising. The companies with the least capital raised are not those seeing the largest gain in bridge round activity, it turns out.
