A Bridge Too Far
The mission with the “A Bridge Too Far” BLOG is to explore the NEED and Advantages of a pure BRIDGE Fund in Georgia.
What is the definition of Bridge? It is rather broad. Usually “Bridge’ is defined as a funding round before, or in-between a Series A and/or B round. Bridge is a securities instrument, but has none of the securities valuation requirements, or issue complexities. At its core, Bridge is a promissory note with conditions.
There are many options available designing a Bridge to advantage the investor or the company. Many investors want to keep it as a debt offering them legal remedies, plus a tax write-off as a bad debt with default. To avoid this a company may want an automatic conversion to stock at the current CAP price.
Today, the trend is to label seed rounds as a Bridge Round and most often, they are structured as debt vs. securities. The ROI Target for equity-based seed rounds at exit is around 12% to 15% ROI Return for Debt instruments is typically 4% to 6% payable monthly or annually or in a lump sum at exit.
Is Bridge debt or equity? Traditionally Bridge is a debt secured with a standard promissory note. Interest can be paid or accrued in the form of a coupon redeemed at takeout.
Conversion options at a specified later date in the form of a convertible debenture enable the Bridge Investor to participate in the securities round, when offered, at a discount. For example. Bridge of $200K with a 6% coupon and 25% discount on the Series A round. This may be an inhibitor to the next investor who is buying the stock at full price compared to the discounted price for conversion stakeholders.
When a convertible option exists, the stock should be allocated in the company CAP table as it represents a dilution factor. Founders like unsecured debt because they don’t have to give up equity or pledge assets.
Bridge Round Model?. Why not use a private equity model, but implemented ONLY for bridge rounds (debt and/or with conversion). The Bridge Fund could also have sidecar Angel options.
For example: Angels can invest $105,000 into the Bridge Fund pool play. $100K goes to the Pool Play. $5K goes to the Bridge admin. Bridge Fund Management screens, selects, negotiates and/or syndicates all Bridge Fund deals. Angel returns are based on the aggregate Pool yield – coupons and conversion exits. Angels, participating in the Pool Play, can make side-card additional investments in selected pool company placements at the Terms and rates negotiated by the Bridge Fund.
The Ritz Group is actively engaged in looking into the creation of a Bridge Fund that would screen the company, complete due diligence and strike the Bridge Fund deal.
Most deals would come from Innovation Star partner recommendations and use their due diligence. Innovation Stars partners can syndicate the deal through the Innovation Stars Network and also solicit funds from Angels participating in the Bridge Pool and/or Angels who are not a Pool participant, but want to sidecar.
Exit Strategies? The Bridge fund pool play represents and holds the debt instrument with the invested companies. A major ADVANTAGE is exit from the Bridge is shorter than private equity investments. Exit occurs at Series A, B, or C funding.
The Bridge Fund Model? The Bridge Fund makes all decisions with regard to terms, exits, write-offs and conversion options. Sidecar investors make all decisions for their sidecar bridge investments based on the Bridge negotiated terms. Bridge revenue consists of fees, interest and stock portfolio pay-outs at PEI exit. Assets consist of Pool Funds under management, Revenue and Stock Portfolio (at issued rate). The key is to create the financial model to validate the Bridge Fund ROI.
How do we get our Funding candidates? The A List will come from Innovation Future and Top Stars recommended by Partners who have vetted candidates, invested in them and/or expressed an interest in participating in a future equity raise. The B List will come from the standard Ritz Group Shark Attack applicants and from the email promotion 4x per month to 2,600 subscribers.
Promotion? The Bridge Fund will always have a “Block” in the Ritz Group 4x monthly email publications. The Ritz Group website will also have a Draw Bridge web page outlining the companies raising Bridge and highlighting the Ritz Group Bridge Fund. The Bridge Fund will also have its own web page outlining its program. Angel Club webpage will also have a Bridge Fund LOGO and link to the Bridge Fund Page. . .
Sourcing Angels?. Use the same vehicles defined above for promoting funding candidates. The Bridge Fund will be a Partner on Innovation Stars and also be a sponsor for Angel Club to maximize Angel presence. The Bridge Fund can also be a Sponsor for the Ritz Group Shark Attack. We can promote directly to the 200+ angels and also to the 100 VC’s that “we do bridge rounds” Often their investments are under-preforming and need a Bridge round to make it to the next Series A,B…. round. Bridge Fund Leader/s should always be present at Ritz Group events and Angel Club.
Value Prop?: The Ritz Group and new 3.0 Programs represents an essential and valuable storefront Point of Presence through its 2,600 subscribers, members, events, programs and reputation in the Georgia ecosystem.
How do the Bridge Fund Managers make their money? Pool Investor Placement ($50k or $100K) comes with a $5K ADMIN fee. Bridge placement can also come with a placement fee paid by the Bridge Funds recipient at Bridge placement and/or at exit. Placement fees can be in Cash and/or Company stock. Acceptance into the Ritz Group Bridge Fund must also account for any fees from investment packagers or brokers.
What is the Bridge Fund Legal entity? The Ritz Group is 501c3 Non Profit. The Bridge Fund will be a for profit LLC. .
My Cause? Most seed rounds are really bridge debt rounds, Pre-Revenue does not qualify for PEI (Series A, B…) Most bridge rounds have a coupon and a conversion clause.
I am not aware of any exclusive Bridge Pools or Bridge Funds in the Atlanta metro area. If one exists, please advise as we want to promote.
The purpose of this BLOG is to test the waters to see if the Ritz Group Bridge Fund will fill a critical VOID and represents a much needed service offering in Georgia’s ecosystem. Angel feedback is solicited.
Bridge Funding has the advantage of less complexity, shorter take-out windows with time to measure/monitor success before participating in the PEI Series rounds. Participating in the Private Equity round through conversion represents the upside for Bridge Round investments. Bridge Round funding is a walk before you run approach to private equity investment in Georgia. .