Understanding Bridge Deals on AngelList

To invest in bridge rounds or not to invest in bridge rounds?

Conventional VC wisdom suggests bridge round investments underperform as a result of adverse selection. However, after analyzing 10k+ SPV investments on AngelList, we find the opposite: certain bridge round deals are among the best performing investments on the AngelList platform.

Bridge Rounds on AngelList

From 2018-2021, 25% of SPVs on AngelList invested into bridge round deals. When broken down by the last financing round before the bridge, seed round bridges made up 30% of all bridge deals, with the frequency of bridge deals decreasing as we move to later-stage financings.

Our data finds bridge round deals are most common for early-stage startups. Early-stage founders often use bridge rounds to buy more time to grow users or build product. By contrast, later-stage startups that raise bridge rounds are often viewed negatively by investors, as the need for bridge financing suggests there may be issues fundamental to the long-term success of the business.

We also analyzed the prevalence of bridge round deals with top-tier VCs on AngelList. We find that, on average, 15% of deals with top-tier VCs were bridge rounds. Again, we see the frequency of bridge deals decrease as we move from early-stage to later-stage deals:

How Do Bridge Deals With / Without a Top-Tier VC Perform?

We use a 24-month markups over baseline (MOB) metric to measure how each segment of investments performed when broken down by bridge / non-bridge and with / without a top-tier VC, beginning with investments completed in 2018 (MOB measures the percentage of investments that have been marked up with a minimum 1.01x over baseline investment value).

While performance varies, we find that bridge deals with top-tier VCs generally underperform as we move from early to later-stage deals.

The above data suggests it would make sense to avoid bridge deals with top-tier VCs. However, further analysis yields the opposite point: on an indexed basis, the top-tier / bridge segment is the best performing segment. We find that for investments aged 2+ years (completed after 2018), the gross TVPI of capital in bridge deals with top-tier VCs vastly outperforms all other segments:

This is the power law of venture returns in action, where a small number of investments drive returns of the overall portfolio. Note that further analysis confirms that top-tier / bridge returns are not driven by a single outlier. Rather, a significant portion of investments in this segment outperform.

Case In Point: Notion’s Seed Extension Bridge

After launching in 2016, Notion opened to solid reviews on ProductHunt and saw strong user growth. Notion raised a seed extension bridge round, which extended runway. Since then, Notion has grown to more than 20M users, and most recently raised a $275M Series C at a $10B post-money valuation.

Bridge Rounds on AngelList

In summary, our data on bridge rounds finds:

• Only 25% of deals on AngelList are bridge rounds.
• There is not a concentration of bridge deals with top-tier VCs. Only a small fraction of deals with top-tier VCs are bridge rounds, and most are for early-stage startups.
• Bridge rounds with top-tier VCs are the best performing deals on the platform, with an indexed TVPI of 5.3.

For more data-driven content on early-stage investing, visit our blog.