|Bridge Financing|| |
This kind of temporary or interim funding is intended to be eventually replaced by permanent capital (from equity investors or debt lenders), and the bridge investor usually would invest in the bridge mainly because it entitles the bridge investor to convert the note into whatever securities may be be sold to the long-term capital investors hopefully to follow.
Sometimes, in emergency conditions, bridge loans are sought as a last resort, and the bridge loans convert into the future long-term financing at a steep discount. In venture capital financings, a bridge loan or financing is usually in the form of a short-term note (4 to 12 months) that is convertible into preferred stock. Typically, the bridge lender has the right to convert the note to preferred stock at a price that is discounted by a fixed percentage from the yet to be known price of the preferred stock issued in the next financing round. A convertible note is sometimes accompanied with warrants in favor of the bridge lender. Bridge financing can be secured or unsecured.