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Understanding Bridge Deals on AngelList

Understanding Bridge Deals on AngelList

A data-driven analysis of bridge round 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

Disclaimer

This document and the information, charts, and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Nothing in this material is intended to be a recommendation for any investment or other advice of any kind. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. AngelList Platform returns and other information contained in this presentation are as of October 21, 2022. We undertake no obligation to provide updates or revisions to reflect any changes in actual or expected returns. It includes investments in single-deal syndicates. These are the platform-level returns and multiples of the entire cohort of investments made on the AngelList platform, calculated before fees and carried interest (i.e., gross) charged by AngelList or leads. These do not represent the returns to investors in any particular funds, which have differing portfolio compositions and may have their own fees, carry and capital calls that would affect an investor’s IRRs. For more information on our valuation policy, please see here.
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