A startup running out of cash between rounds rarely has elegant options: open a full priced round early at a weak valuation, or take quick money from existing investors as a bridge. In practice the second route is far more common, because bridge financing is the most practical way of postponing the valuation debate. The parties do not have to agree a price today; the money arrives now and the price is set at the next round. The mechanics of the bridge round are built precisely around that deferral.
The legal carrier of that deferral is usually one of two documents: the convertible note and its simplified cousin, the KISS. Both come out of Silicon Valley practice, and neither maps cleanly onto Turkish law. A good share of the bridge files that have crossed our desk in the past two years carry the same mistake: the assumption that the English-language templates can be applied as they stand to a joint-stock company incorporated in Türkiye.
A bridge document signed without understanding that gap tends to end in a crisis at the next round — either the conversion mechanics do not work, or the investor does not receive the shares they expected. This article is a map for avoiding that crisis at the negotiating table.
What a bridge round bridges, and what it does not
Bridge financing is, as the name suggests, a crossing between two banks: current cash on one side, the next priced round on the other. The scenario in which it works is well defined: the company’s metrics will improve visibly within a few months, and the round will open on that stronger picture. In that scenario the bridge protects the founder from dilution at a weak valuation and rewards the investor’s early confidence through a discount or a valuation cap.
What it does not bridge is a structural problem in the business model. If the product is not selling, a bridge simply moves the same question six months down the road with a heavier debt load attached. In companies that take a second and then a third consecutive bridge, the picture is always the same: the maturity date has arrived, the round has not, and what sits on the table is no longer a financing negotiation but a debt restructuring. The first question about any bridge is therefore commercial, not legal: which concrete milestone will this money reach, and will that milestone genuinely open a round?
There is also a signalling dimension. A bridge joined only by existing investors can be read two ways by the market: either “the insiders still believe” or “nobody outside wanted in”. Which reading prevails depends largely on the bridge’s terms; a short bridge on a reasonable cap and a reasonable discount is a mark of confidence, while a heavily conditioned bridge rolled over again and again says the opposite.
The anatomy of a convertible note: interest, maturity, conversion triggers
A convertible note is at its core a debt instrument: it has principal, interest and a maturity date; its distinguishing feature is that the claim converts into shares when defined triggers occur. Founders in negotiation tend to focus on the amount and the cap; yet almost all disputes come out of the other items. The negotiated points fall under four headings.
- Conversion triggers. The standard trigger is a priced round above a defined minimum size — documented as a qualified financing. A sale of the company and the arrival of maturity are added to it; what happens in each of the three scenarios must be written out separately.
- Discount and cap. On conversion the investor receives a discount to the round price and/or a valuation cap. Where both exist, the document should state expressly that whichever is more favourable to the investor applies; leave that unclear and the lead investor of the next round will reopen the calculation.
- Interest. Interest is usually not paid in cash but added to principal on conversion. What the founder needs to see is the shareholding that interest quietly grows: every additional month increases the stake the investor takes at conversion.
- Maturity and default. Market practice generally sets maturity between one and two years. The critical question is what happens if no round has arrived by then: a repayment demand, an automatic extension, or conversion at a pre-agreed valuation? A document that leaves this blank hands the investor, at maturity, the leverage of threatening the company with insolvency.
What the KISS simplifies, and what it does not
The KISS is the standard document 500 Startups developed for the space between the convertible note and the SAFE; the debt version carries interest and maturity, the equity version does not. What it simplifies is the negotiation load: the parties discuss only the cap, the discount and the amount, and the template handles the rest. That is where the power of a standard document lies: everyone recognises the same text, and legal review costs fall. At an early stage, where the amount is small and the parties have neither the time nor the budget for a long negotiation, that is a serious advantage; on a SaaS startup’s first bridge, two weeks of document negotiation often costs more than the round itself.
What it does not simplify is the local law layer. KISS templates are drafted on US law assumptions: automatic conversion, preferred shares issuable by board resolution, minimal share transfer formalities. If the instrument is to be used for a company incorporated in Türkiye, those assumptions have to be picked out one by one and adapted to Turkish law. Translating the template and signing it as it stands trades the gain of simplicity for enforceability risk. For a comparison of the neighbouring instruments, see our piece on SAFEs and SAFTs as private investment vehicles.
Under Turkish law: debt, or a commitment to issue shares?
This is the heart of the matter. In a Turkish joint-stock company, shares can only be issued through a properly executed capital increase: a general assembly resolution, an amendment to the articles, registration. The US-style mechanic of “the claim converts automatically when the round closes” does not operate of its own force here; at the moment of conversion, the company and its shareholders must actually carry out a series of corporate steps.
A convertible note or KISS signed in Türkiye is therefore, legally, a blend of a debt relationship and an accompanying contractual commitment to issue shares: the investor advances the money today as debt, and the company and the founders undertake to carry out the capital increase and allot the new shares to the investor once the trigger occurs. If that undertaking is not honoured, what the investor is usually left with is damages and repayment of the claim rather than specific performance — which means the strength of the document depends on the counterparty’s corporate cooperation. The ways of reducing that risk are well established in practice: a voting undertaking from the founders as shareholders to approve the conversion steps, the registered capital system where available, contractual penalties, and a conversion mechanic written out step by step. A written waiver from the existing shareholders of their pre-emptive rights in the conversion increase should also be obtained; without it, even a properly executed increase can send the new shares to the existing shareholders rather than to the investor. How the conversion will be documented, and which corporate resolutions will be passed with whose votes, should be settled at the term sheet stage, exactly as in a priced round.
Allocating the risk: who loses what on the maturity date?
The real test of a bridge document comes not when the round closes but when it fails to arrive. In that scenario the investor holds a matured claim and has two options: demand repayment, or sit down with the company for a new arrangement. If there is no cash in the account, a repayment demand can in effect trigger the end of the company; a rational investor therefore usually chooses extension or conversion at maturity. But that rationality needs to be written into the contract; it should not be left to goodwill. The cleanest solution in practice is an automatic extension at maturity combined with an option for the investor to convert, in defined circumstances, at a pre-agreed valuation; that way neither side can turn the maturity date into a bargaining weapon.
On the founder side, the most dangerous item is the personal guarantee. In early-stage bridges we occasionally see investors ask founders for personal security; this runs against the risk-sharing logic of venture capital and should as a rule be refused. The second point of attention is keeping the side rights granted to the bridge investor (vetoes, information rights, transfer restrictions) modest enough not to collide with the lead investor of the next round. The third is most-favoured-investor style clauses: any privileged term granted to one investor in the bridge may spread automatically to the others in later documents, and that should not be forgotten.
To pull the threads together: in the right scenario, bridge financing is both a fast and a fair instrument, but its documentation must be drafted against the realities of Turkish company law rather than translated from a US template. Define the conversion triggers separately for the three scenarios — qualified financing, sale and maturity — put the maturity-day plan into the contract, write out the corporate steps of conversion with the founders’ voting undertaking and the existing shareholders’ pre-emption waiver, and stay away from personal guarantees. Resolve those four items at the table and the bridge is genuinely a bridge; leave them open and the document is the first page of a debt crisis, the bill for which is almost always presented to the founder.
This article is provided for general information only and does not constitute legal advice. Please seek legal support for an assessment of any specific matter.
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