Bridge Round Funding: How to Model Costs and Dilution

Bridge round funding is interim capital that helps a business reach its next fundraise or a milestone such as a major customer contract. To model a bridge round, forecast monthly cash, calculate the shares issued under the proposed terms, and compare founder ownership and repayment obligations across scenarios.

The milestone might be a customer contract, product release or stronger trading position. Check whether the funding gets you there with enough cash to manage repayments or a delayed round.

Start with the cash requirement, then calculate what the proposed terms mean for runway and ownership.

Key Takeaways

• Model usable cash after fees, cash interest and repayments.
• Calculate conversion using the agreement’s definitions of discount, valuation cap and capitalisation.
• Include every share claim, including existing convertibles, warrants, granted options and the unallocated pool.
• Test a strong round, a down-round and no qualifying round before the contractual deadline.
• Link the model to your legal documents, share records and milestone plan before signing.

How to model bridge round costs and dilution

This worked example follows a £300,000 bridge from initial funding to conversion. Use the terms in your signed documents for your own model.

Start with the cash need, runway and total cost

Calculate the funding gap against a monthly forecast, including legal and advisory fees. Start with opening cash, add usable bridge proceeds and expected receipts, then deduct operating spend and any cash interest or repayments when due. Track the lowest cash balance and the date cash falls below your operating buffer.

Assume £300,000 principal, 8% annual simple interest and conversion after 12 months. Rolled-up interest adds £24,000, so £324,000 converts. Model compounding if agreed; cash-paid interest reduces runway instead.

Calculate conversion shares and the ownership after the next round

Assume 1,000,000 founder shares with no other claims. In this simplified example, the documents use those shares for both the £2m pre-money round valuation and the valuation cap calculation. That gives a £2 round share price.

A 20% discount gives £1.60. A £1.5m cap using the same denominator gives £1.50. Under an agreement selecting the lower price, £324,000 divided by £1.50 creates 216,000 conversion shares.

Another £1m invested at £2 buys 500,000 shares. Divide each holder’s shares by the 1,716,000 total shares to calculate post-round ownership.

Percentages are rounded. Model the bridge and subsequent round together. Our equity dilution modelling guide develops the full calculation.

Include option pools and every other share claim

Add granted and unallocated options, warrants, ASAs, SAFEs, other notes and convertible accrued interest. Avoid double-counting grants within the reserved pool.

Adding 100,000 unallocated options to 1,000,000 founder shares gives the founder 90.91% on a fully diluted basis before conversion and new investment. Recalculate the round and conversion prices if the agreement includes the pool in either pricing denominator.

State whether the pool is counted before or after conversion and new investment. A pre-money top-up can change pricing and put additional dilution on existing holders. A post-money top-up also dilutes incoming investors.

Compare bridge funding options and model the outcome if plans change

Deferred conversion and immediate equity issuance need separate calculations. Neither removes the need to model an unsuccessful fundraising outcome.

Model a convertible loan note, an ASA and priced bridge equity separately

A convertible loan note (CLN) is debt. Capture interest, discount, cap, qualifying-financing trigger and maturity. Then model the contractual repayment, extension or conversion outcome. A maturity date without repayment capacity is a material funding risk.

An advance subscription agreement (ASA) takes payment for shares issued later. Model its conversion price, financing trigger and longstop. It isn’t intended to be repayable debt.

For SEIS and EIS, HMRC expects an ASA to be non-refundable, interest-free and incapable of amendment, cancellation or transfer, with a deadline for issuing shares. HMRC generally expects that deadline to be within six months of signing. A longer longstop makes advance assurance unlikely, while eligibility is assessed on the facts. See HMRC’s guidance for SEIS advance subscription agreements and EIS advance subscription agreements.

Priced bridge equity issues shares immediately. Model the agreed share price, share class and pool changes. Don’t apply note conversion mechanics unless the documents expressly require them.

Run strong-round, down-round and no-round scenarios

Keep the example’s £324,000 conversion balance. Assume £1m new money in each completed round, with unchanged cap and discount definitions.

These outcomes exclude other share claims and pool increases:

In the down-round, the note converts at the discounted £0.80 price. Its £1m investor receives 1,000,000 shares.

At £50,000 monthly net burn, either completed round adds 20 months’ gross runway before fees. Repaying £324,000 consumes 6.48 months of cash cover instead.

Calculate remaining runway using opening cash and revised spending. For an ASA, apply its longstop share-issue mechanism rather than assuming loan repayment.

Check the terms, UK rules and model before signing

Ask your legal and tax advisers to check how the proposed terms apply to your company.

Review triggers, consents, pre-emption and share records

Define what counts as qualifying financing and whether conversion is automatic. Treat a sale, IPO, maturity and longstop as separate events. Include extension rights and any repayment premiums.

Your solicitor should review authority under the Companies Act 2006 to allot shares or grant conversion rights. The articles, shareholder agreement, consent requirements and statutory pre-emption rights also need to support the transaction.

Reconcile issued shares with the register of members and supporting allotment documents. Tie options, warrants and convertibles to signed agreements, including side letters.

Full-ratchet or weighted-average anti-dilution protections can change ownership in a down-round. Apply the documented formula and carve-outs rather than assuming the original conversion ratio survives.

Use the model to negotiate bridge terms

Compare the bridge with raising less, reducing burn, securing suitable non-dilutive funding or waiting for a milestone. Waiting only works if available cash supports it.

Test cap, discount, interest, pool size and repayment changes separately. Record the cash low point, founder ownership and funding deadline for each proposal. This makes the commercial trade-off visible before negotiations become focused on one headline valuation.

Our debt and equity funding comparison helps frame the alternatives. Our financial modelling and forecasting guide connects funding assumptions to sales, hiring and operating cash requirements.

Common errors include omitted interest, issued-only share counts and a single forecast presented as certain. Keep documented assumptions and a dated term-sheet version alongside the model. At Consult EFC, we connect those calculations to the business decision: what the funding enables, what it costs and what happens if the plan slips.

Frequently Asked Questions

Does my ownership percentage equal my share of sale proceeds?

Not necessarily. Preference shares can carry liquidation preferences or participation rights that change how proceeds are distributed. Model an exit waterfall at several sale values, because a 58% holding doesn’t automatically receive 58% of the consideration.

Can I retain majority ownership but lose decision-making freedom?

Yes. Investor consent rights, board appointments and reserved matters can restrict decisions without changing ownership percentages. Review control rights separately, particularly where investors can block further fundraising, significant expenditure or senior appointments that your growth plan requires.

Do unvested options belong in the fully diluted calculation?

Generally, outstanding unvested options count in a fully diluted model, subject to the agreed capitalisation definition. Vesting doesn’t create additional shares, so don’t add those options again when they vest. Record valid lapses and exercises to avoid overstating the total.

Can an existing investor maintain their percentage in the next round?

Pro-rata participation rights can allow an investor to subscribe for enough additional shares to maintain their percentage. That requires further investment; the right doesn’t prevent dilution without it. Model any participation commitment alongside the allocation available to new investors.

When does an ASA investor’s SEIS or EIS relief begin?

Relief relates to the qualifying share issue, rather than the earlier ASA payment. Reflect that timing in investor communications without promising relief before company, share and investor conditions are satisfied.

Does HMRC advance assurance guarantee the investor’s tax relief?

No. Advance assurance is HMRC’s view of whether a proposed share issue is likely to qualify, based on the information submitted. The actual share issue and subsequent circumstances still matter. Describe it accurately in fundraising materials rather than presenting it as guaranteed tax treatment.

Build the bridge around a meaningful milestone

A bridge is worth considering when the extra runway gives your business a credible route to a meaningful milestone. Understand the repayment risk and future dilution before deciding whether that runway justifies the terms.

Update the fully diluted cap table, test several outcomes and review the documents before signing. The decision should remain workable if the next round takes longer or arrives at a lower valuation.

Book a consultation with Consult EFC to discuss your bridge funding model.

Kish Patel ACA, ICAEW · Founder, Consult EFC

Over 12 years across Big Four audit, Investment Banking, and corporate advisory. Kish works with SaaS founders, tech companies, and ambitious UK SMEs from £1M to £50M in revenue on fundraising, valuations, exit planning, and financial strategy. ICAEW regulated. Big Four trained. Based in London.