By Alex Knight - Founder and CEO of Advanced, an Australian R&D capital partner that helps founders and startups access their R&D Tax Incentive refund before the ATO pays it out.

One in three Australian startups raised bridge funding in the past year. Most of them didn't plan to.

Bridge funding happens when the runway runs out before the next milestone is ready. It's not a failure of strategy. It's a structural reality of building a company. The gap between where you are and where you need to be to raise the next round almost always takes longer to close than the capital you raised to close it.

The question isn't whether you'll need a bridge. It's whether you'll be ready when you do.

What Bridge Funding Actually Is

Bridge funding is capital raised to extend a startup's runway between two financing events: usually between a Seed round and a Series A, or between a Series A and a Series B. It's not a permanent capital solution. It's time. Time to hit a metric, close a customer, finish a product, or get to a moment where the next raise is possible on better terms.

The word "bridge" is accurate. You're crossing a gap. The question is what you're crossing it with. Not all materials are equal.

Why Australian Startups Are Bridging More in 2026

The Australia Australian startup ecosystem raised over $5.4 billion in 2025, a 31% increase on 2024. The headline looks bullish. The underlying reality is more nuanced.

Deal count dropped by 20% in the same period. Capital concentrated at the top. The largest deals captured a disproportionate share of what was raised. The bar for a Series A has moved materially: investors are looking for stronger revenue traction, clearer unit economics, and evidence of a path to profitability that wasn't required three years ago.

The result is a widening gap between where most startups finish their Seed round and where Series A investors want them to be. More startups are operating on less than 12 months of runway. More are choosing to bridge rather than raise a full round at metrics they're not happy with or valuations that don't reflect the business they're building.

Bridging, when done with the right instrument, is a rational response to that environment. The mistake is reaching for the wrong one.

The Five Bridge Funding Options for Australian Startups

Not every option is available to every startup, and not every option is appropriate for every situation. Here's what actually exists, what it costs, and when it makes sense.

1. Convertible notes or SAFEs

A convertible note is a short-term debt instrument that converts into equity at the next qualified financing round. A SAFE (Simple Agreement for Future Equity) works similarly but without the debt structure. It's a right to future equity rather than a loan.

Both are commonly used as bridge instruments from existing investors or angels who want to support the company between rounds without pricing a new round.

What it costs: Convertible notes typically carry an interest rate of 6–10% per annum. Both instruments usually include a discount rate (typically 15–20%) applied to the next round's price, giving the bridge investor a better price per share when they convert. Some include a valuation cap.

When it works: When you have supportive existing investors willing to extend, and when the next qualifying round is genuinely 6–12 months away. The instrument is efficient because it avoids a formal valuation and closes quickly.

The risk: If the next round doesn't happen on the anticipated timeline, convertible notes become a debt obligation. Accumulated interest compounds. And the discount and cap mechanics mean the eventual dilution is larger than it appears at signing.

2. Revenue-based financing

Revenue-based financing (RBF) advances capital against a company's future recurring revenue. Repayments are structured as a percentage of monthly revenue until the advance plus a fee is repaid, typically 1.2–2x the amount borrowed.

What it costs: There's no equity transfer and no interest rate in the traditional sense. The cost is the repayment multiple. Borrowing $200,000 at a 1.5x multiple means repaying $300,000 over time. The effective interest rate depends entirely on how fast revenue grows.

When it works: For SaaS companies with predictable monthly recurring revenue, consistent growth, and a track record of at least 6–12 months. RBF providers like Tractor Ventures and Clearco assess recurring revenue, not assets or equity.

The risk: If revenue is lumpy or pre-revenue, RBF isn't available. If revenue slows after drawing down, the repayment obligation remains. And the monthly revenue percentage taken for repayment can meaningfully reduce working capital during a slower period.

3. Venture debt

Venture debt is a loan typically offered to VC-backed startups alongside or shortly after an equity raise. It's structured as a term loan with monthly interest payments, and usually includes warrant coverage: a small number of warrants for equity in the company. In Australia, providers include Silicon Valley Bank (now part of First Citizens Bank), WestPac Reinventure, and several specialist venture lenders.

What it costs: Interest rates typically sit between 8–14% per annum. Warrants usually represent 0.5–2% of the loan amount in equity value. Set-up and administration fees apply. A $1 million venture debt facility at 12% over 18 months costs approximately $180,000 in interest before warrant dilution.

When it works: When you've just closed an equity round and want to extend runway without further dilution. Venture debt providers lend against equity capital. They want to see a VC on your cap table, strong investor backing, and ideally some revenue.

The risk: Monthly repayments reduce cash position regardless of business performance. Covenants may restrict what you can do with the capital. Warrant dilution is permanent. And if the business doesn't perform, the debt remains.

4. Government grants

Australian government grants: the Entrepreneurs' Programme, Accelerating Commercialisation, CRC grants, and Export Market Development Grants. These provide non-dilutive capital that doesn't need to be repaid.

What it costs: Nothing, in theory. In practice: significant time in preparation and application, months of assessment, and months more in disbursement after approval. Most grants also require co-funding. You need to spend first and claim later, or match the grant dollar-for-dollar.

When it works: When you plan proactively. Grants are a runway extension tool for founders who apply before they need the money. They are not a bridge instrument for a company with eight weeks of runway.

The risk: Timeline is the killer. A grant application started today rarely produces capital in less than three to six months. And approval is never guaranteed. You can spend significant time on an application that doesn't come through.

5. R&D financing

 For Australian startups spending on eligible R&D activity, R&D financing is the least understood bridge option, and often the most relevant.

If your business is accruing R&D expenditure eligible under the R&D Tax Incentive program, you're building toward a refund. That refund is a committed receivable. Not a projection, not a maybe. The Australian Government has structured a program to pay it back at 43.5% of eligible spend for companies with turnover under $20 million. The problem is timing. The refund doesn't arrive until after 30 June, after your claim is lodged, and after the ATO processes it.

R&D financing advances that anticipated refund before the ATO processes your claim. You get access to the capital you've already earned, right when the build needs it. When the ATO refund arrives, it repays the facility. No equity. No warrants. No monthly repayments against cash. No personal guarantees.

What it costs: A financing fee based on the size of the facility and the duration. At Advanced, the rate is approximately 1.38% per month. On a $200,000 facility over six months, the financing fee is approximately $16,500, significantly less than the equity dilution from a bridge round at a suppressed valuation.

When it works: When your business has eligible R&D spend accruing this financial year. For companies spending on product development, clinical trials, field trials, hardware development, or any genuinely experimental activity, the refund is likely already building.

The risk: The facility is sized based on the anticipated refund. If eligible spend is lower than expected, the facility is sized down accordingly. And like any financial product, the terms depend on your specific situation. Assessment is required.

The Decision Framework: Which Option Is Right for You

The right bridge instrument depends on two things:

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First: is this a capital problem or a timing problem?

A capital problem means the money doesn't exist yet. You need to fund a new hire, a market entry, or a product extension that your current revenues or receivables can't cover. Convertible notes, venture debt, and grants address capital problems by bringing in new capital or accessing future revenue.

A timing problem means the capital exists but it's stuck in a future payment. An R&D Tax Incentive refund. A signed customer contract with 60-day payment terms. A confirmed grant awaiting disbursement. For timing problems, non-dilutive instruments that advance existing receivables are almost always cheaper than raising equity to bridge the gap.

 Most founders treat every cashflow problem as a capital problem. Many of them are actually timing problems. And they solve timing problems with permanent dilution.

Second: how long do you actually need?

Be precise. If you need four months to close a customer that gets you to Series A metrics, a four-month bridge is what you need. Every additional month of bridge capital you raise has a cost: in interest, in dilution, or both. Don't raise six months of bridge if four months solves the problem.

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What Bridge Funding Costs When You Do It Under Pressure

This is the part most guides skip. The cost of bridge funding isn't just the interest rate or the discount on a note. It's the negotiating position you're in when you raise it.

A startup with four months of runway raising a bridge is raising from obvious need. Investors know it. Terms reflect it. Valuatiluation caps on convertible notes get set lower. Discounts get set higher. Covenants on venture debt get tighter. The down-round risk on any priced bridge gets larger.

The founders who manage bridge funding well are the ones who start the conversation before they need to. With more than six months of runway, you have options. With less than three months, you have pressure. And that pressure shows up in every term sheet.

Understanding your real runway, including near-term receivables like your R&D refund, is where this starts. A company that appears to have eight weeks of cash may have five months of real runway once committed receivables are factored in. That difference changes what instruments are available and at what terms.

A Note on Bridge Funding and Your Cap Table

 Every bridge round leaves a mark. Convertible notes and SAFEs convert into equity at the next round, sometimes at prices that surprise founders who didn't model the dilution carefully at the time of signing.

Before signing any bridge instrument, model the cap table impact at three scenarios: the next round happens at the valuation you're targeting, it happens at 30% below that, and it happens at the valuation cap on the note. The outcomes in each scenario are often more different than they appear when the instrument is a one-page term sheet.

The dilutive vs non-dilutive framework covers this in more depth, specifically how to think about which problems deserve equity and which ones don't.