Charles Hudson explains how founders should approach existing investors when seeking bridge or extension financing. He emphasizes that initial investments are ex ante bets made with limited information, so investors will reassess how time and capital were spent, whether milestones were met, and whether the founder’s progress justifies additional funding. Hudson also highlights that investors’ willingness to write extensions depends on their business models—many angels avoid bridges, and some VCs prefer new outside lead capital to set terms.
One of the most important and common conversations I have with founders is how to talk to your existing investors about a bridge or an extension when you've already raised around from them previously. This can be a really challenging conversation for founders for a number of reasons, some of which I hope to illuminate in this short video.
I think one of the most important things for you to recognize as a founder is that that initial investment decision that someone made about your company was made with little to no information about the company. So think of it as an ex ante bet. They got to know you, they made a decision to invest and support you, and now when you're coming back to them for more money. There's a lot of questions that go through an investor's head when this happens. One of the first ones is what have I learned from working with this team? We gave them capital and time. How was that time and capital spent? And how do I as an investor feel about the return on the time and capital the company's invested?
That's kind of an obvious one. If you perform really well and maybe the markets aren't favorable or maybe the goalposts have changed in terms of what you need to achieve, it's very reasonable for you to ask for an extension. In many cases though, it's worthwhile for you as the founder to reflect. If I were not me, if I were looking at this outside in, how would I feel about the way that the time and money invested in this company had been spent? Did we hit our milestones? Did we achieve what we told investors that we would set out to do? And what happened? So that's number one. There's also a lot of other things in the background that happened that I think it's important for you as the founder to understand. And your VCs may or may not be open and honest and upfront with you about this. One of the big ones is what is your venture fund investor or angel investor's business model? Many angel investors business model is to not do bridges and extensions. They write a first check at a moment of maximum optimism and hope. And unless you get to that big milestone next round, they are not really situated or set up to write extension or bridge checks. Second, there are other venture funds who really don't like to write bridger extension checks unless there's new money, preferably an outside lead that's coming in to price and set terms for that round. They're very worried about, quote unquote, throwing good money after bad by continuing to invest in a company that wasn't able to hit its milestones and comes back asking for more money. So I think it's really important for you to understand the business model of your VCs and investors before you go back to them and ask.
Related There's a really important thing to consider is when did you ask for this Bridger extension? Are you asking for this bridge and extension on the back of a failed fundraise where you've gone out and Talked to maybe 30 or 40 venture funds who've all said no? Are you asking for this bridge and extension well in advance of your next fundraise? As you can imagine, in the case where you've gone out and talked to 30, 40, 50 venture funds and they've all said no, some VCs will say, well, the market has already rendered judgment on this company and there really isn't any reason for me to continue to invest in the company based on what the market has said. That's really different than asking for a bridge or extension well in advance of when you need it. Before the market has rendered any judgment on the company's next round. I'd say there's two other really important things for you to consider as a founder. One is what's the minimum amount of capital you need to raise to get to the next major milestone? Simply raising money to keep going and extend your Runway is not something that's really attractive to investors. That's a part of the story. But simply extending your Runway cannot be the whole story. I don't think that will serve you well. So it's important to understand, well, what are the big milestones you feel like you have to clear? That could be a revenue milestone, it could be a milestone around shipping a product. There's oftentimes something you need to achieve as a company that will unlock the next round. And last but not least, think about the pricing and terms that you're willing to take new money on. In some cases, founders have raised money in the previous round on terms that no longer make sense given the progress in the market environment. And you as a founder have to decide how flexible you're willing to be on new terms. Does it have to be a flat round? Does it have to be an up round? Are you open to a down round? These are all important considerations that go into that decision making process for your investor. So I just want to make sure you're aware of all of these things before you go and talk to them about that next round.
