Bridge Rounds and Extension Rounds in Dutch Startups

Interim funding can buy a startup time, but the bridge should be structured around the next financing round rather than only the immediate cash need.

A bridge round usually starts with a practical problem: the company needs more runway before it is ready for its next priced financing. An extension round may instead continue an existing equity round, often on the same or closely related economics.

For a Dutch startup, both can be effective. They can also make the next institutional round considerably harder if conversion terms, existing investor rights and the future cap table are not addressed when the interim financing is agreed.

Foreign investors looking at a Dutch bridge should therefore review more than the amount being raised. The instrument, dilution, investor rights and Dutch BV implementation all affect what the company will look like when the next lead investor arrives.

This forms part of the broader Dutch Venture Capital Insights on financing Dutch startups and scale-ups.

Bridge round or extension round?

A bridge round is generally intended to fund the period until another event: a Series A, a larger growth round, a commercial milestone or sometimes a sale process.

The financing may be structured through a convertible loan, another convertible instrument or a direct equity investment.

An extension round is different. Instead of postponing the valuation discussion, the company raises further equity using the previous round as its starting point. Existing or new investors may subscribe for the same share class at the existing price, or on adjusted terms if circumstances have changed.

That distinction matters. A convertible bridge postpones part of the pricing exercise. An equity extension fixes the dilution immediately.

Neither structure is inherently better. The relevant question is what the company expects to happen next.

Internal bridges can change investor dynamics

Existing investors are often the fastest source of bridge capital. They already know the company and may have a strong incentive to protect the value of their existing investment.

But an internal bridge is not simply a funding decision.

Some shareholders may participate while others do not. Participating investors may ask for a discount, valuation cap, additional information rights, a warrant or more favourable conversion terms. Earlier financing documents may contain pro rata rights, pre-emption rights or investor consent requirements.

That can change the balance between the existing investors before the next institutional round.

Particular care is required where one shareholder effectively determines the bridge terms because the company has limited alternatives. Those terms will later be visible to a new lead investor in due diligence.

A short bridge document should therefore still make clear who receives which rights and whether those rights disappear, convert or continue after the next financing.

Valuation is postponed, not avoided

Convertible bridges are often attractive because the parties do not need to agree the company’s valuation immediately.

The valuation discussion nevertheless remains in the economics.

A discount gives the bridge investor a better price than the investors in the next round. A valuation cap sets a ceiling on the valuation used for conversion. Interest may also convert into shares. If several convertible instruments are outstanding, each with different terms, the dilution can become difficult to predict.

I would model that position before the bridge is signed.

Founders should be able to see what happens if the next round is completed at several different valuations. Incoming investors will make the same calculation when they review the fully diluted cap table.

This is particularly important where the company has already issued options, warrants or earlier convertible instruments. The bridge should not be assessed in isolation from the existing cap table.

A bridge can signal more than additional runway

The commercial circumstances behind the bridge matter.

A company raising interim capital because a Series A process simply takes longer than expected is in a different position from a company that has missed its targets and cannot raise at its previous valuation.

Investors should therefore understand why the bridge is needed, how much runway it actually provides and what must happen before the next financing.

Founders should be realistic about this as well. A bridge that extends runway by six months is only useful if six months is enough to reach the next financing point.

Disclosure also matters. Existing investors providing emergency capital will usually have substantial information about the company. A new bridge investor will need a sufficiently clear picture of cash runway, outstanding financing instruments, material liabilities and the assumptions behind the next round.

If the bridge is effectively preceding a down round, existing anti-dilution protection may also need to be considered.

Dutch BV implementation

A bridge structured as a convertible loan does not require shares to be issued on day one. It does, however, create an obligation that must be capable of conversion later.

For a Dutch BV, conversion into new shares will normally require corporate approvals and notarial execution. Pre-emption rights, existing investor approvals, the articles of association and the shareholders’ agreement should therefore be checked when the bridge is documented.

Waiting until the Series A can create unnecessary friction. By then, the new investor wants to close its own financing and the company may need to determine simultaneously how several old instruments convert.

An equity extension requires the corporate steps immediately. The subscription, relevant shareholder approvals, share class and notarial issue need to be coordinated as part of the round.

Foreign investors should not assume that a short bridge term sheet or convertible instrument by itself completes the Dutch equity mechanics.

Draft the bridge for the next round

The best bridge documentation anticipates its own end.

For a convertible bridge, that means defining a qualified financing, the conversion price, treatment of accrued interest, maturity, an exit before conversion and what happens if no next round occurs.

It also means checking any MFN, pro rata, side-letter or warrant rights that could survive into the next financing.

A new lead investor usually wants to understand the cap table quickly. A collection of bridge instruments with different conversion definitions, side rights and maturity positions makes that harder.

In my experience, that is where an interim financing stops being “simple”. The document may be short, but it becomes part of the legal architecture of the next round.

Practical conclusion

Bridge and extension rounds can give a Dutch startup the time it needs to reach its next financing milestone. The structure should be chosen with that next round already in view.

A convertible bridge postpones pricing but can create substantial future dilution. An extension round gives more immediate certainty but requires the valuation and equity allocation to be addressed now.

For international investors, the Dutch workstream is to ensure that the instrument, existing shareholder rights, cap table, corporate approvals and eventual notarial share issue all point in the same direction.

A bridge should make the next round easier to close, not create another negotiation that has to be solved first.

FAQ

What is the difference between a bridge round and an extension round?

A bridge usually provides interim financing until a later financing event and is often convertible. An extension round generally adds capital to an existing priced equity round on the same or related terms.

Are convertible loans commonly used for Dutch bridge financing?

Yes. They allow funding to be raised before the next valuation is fixed, but the conversion mechanics, valuation cap, discount, maturity and dilution need to be clear.

Does conversion require a Dutch civil-law notary?

If the bridge converts into newly issued Dutch BV shares, the share issue generally requires corporate approvals and a Dutch notarial deed.

What should be checked before an internal bridge round?

Existing investor rights, participation rights, consent requirements, the fully diluted cap table and any special economics offered only to the bridge investors should be reviewed.

About Dirk de Waard

Dirk de Waard is a Dutch corporate, M&A and venture capital lawyer and partner at Venture Lawyers in Amsterdam. He advises international investors, founders and growth companies on Dutch bridge rounds, convertible financing, equity rounds, shareholder arrangements and Dutch BV implementation.

Preparing a bridge or extension round involving a Dutch BV?

Dirk advises on the Dutch venture capital workstream, including financing terms, convertible instruments, cap table impact, shareholder approvals and coordination of Dutch closing and notarial implementation.

Contact Dirk at dirk.dewaard@viottalaw.com to discuss a Dutch bridge or extension financing.