At AdvantEdge, we have always done bridge rounds only for existing portfolio companies and not as a first check into a start-up. There is a perception that a bridge is an acknowledgement that things have not quite panned out as planned and the company is not in a position to raise a priced round and needs to extend their runway.
The risk-adjusted return of a bridge is always stacked against the investor. Given that it is normally a small infusion to extend the runway by a few months, the risk of losing it all is higher than normal if a priced round is not raised in that period. Further, the upside is capped to a certain discount to the next round. Hence, as a policy, we have never participated in an external bridge round and that’s always served us well. Except once.
We had an opportunity to invest in Lendingkart. Harsh Lunia gave a very impressive pitch. Since one of our anchor LP (limited partner) runs a very large non-banking financial company, there was a lot we could bring to the table, including equity infusion from the fund, as well as access to debt from a well-funded balance sheet and strategic synergies from the LP’s pan India network. The deal was a no brainer.
We spent a lot of time with the team, on commercial and technical diligence and all the boxes were checked. However, we couldn’t get it past the finishing line as we were not able to build an internal consensus on making an exception to our bridge round rule.
The key learning for us was: if the team is good, the model is scaling and it’s in a space with a huge untapped potential, back the team irrespective of the valuation and the nature of the round-priced or convertible. At the end of the day, it will make you money.
A section where investors talk about missed opportunities in start-up investments.