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Beware of the Bridge!

August 19, 2011

If you are in fundraising mode and considering a bridge loan, you need to read this!

In the startup world, bridge loans are a particularly interesting case to study. I’ve been in and around startups for 25 years now and I have rarely seen a bridge loan made by anyone other than an existing investor or investor group. Most bridge loans in the startup world are made to money losing companies that are going to run out of funds before they can close a financing or sale transaction. These are very risky loans that will not get paid back unless a transaction happens and often the transactions that are required don’t happen.

If you could assemble a data dump of all bridge loans made by VCs and angel investors to startups over the past twenty five years, I think you’d see that the aggregate performance of these bridge loans would be awful.

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