On a more philosophical/psychological level, you may want to take a moment to think about what you want to be when you "grow up," because what one is able to accomplish is often a self-fulfilling prophecy to one's vision. And if your vision is a bit cloudy at this time, pay attention to the personality/philosophy/views of the thesis adviser you pick, because your vision can be greatly influenced by your professor during this formative stage of your life. Most young people are surprised when I ask them to define what they will be like at age 60. However, I must confess that when I was your age I did not realize how useful that exercise could be.
Q: What are the ins and outs of a bridge loan?A: A bridge loan is used to tide a company over until the company can complete its next round of financing. The loan usually bears interest and may have warrant coverage. That is, the loan converts to stock at a discount off the next round price. Depending on the risk perception, warrant coverage could be in the 15% to 50% range. In normal times, a bridge loan is used to provide operating funds allowing time for lawyers to draft documents after investors agreed on a term sheet to invest; or it is used to provide time for the company and its investors to agree on an appropriate valuation. For example, the company is optimistic about closing a big order, or investors are nervous seeing a product development milestone missed.Given that valuations for privately held companies have taken such a drastic downward spiral in recent months, a bridge loan is used to allow time to see how the stock market would perform "a couple of months" down the road. What is happening is VCs are tired of being forced into making bridge loans to keep their portfolio companies afloat because it is very difficult to raise money from new investors. Also customers and service providers are nervous, interpreting the need for a bridge loan as meaning "the company is in trouble." Another problem is when the bridge loan is sizable, new investors view it as a way for inside investors to take advantage of the situation and would therefore demand a lower valuation to match. And since warrant coverage is a discount on the valuation, it creates a negative feedback loop to argue for lower valuation.
My advice is for the company to go straight to getting the next round funded to avoid dealing with the uncertainty of the stock market. And if you have to use a bridge loan, keep it small and stretch your spending to make it last.
Q: How open should I be with my investors?A: I always advocate "honesty is the best policy." As a practical matter, people always think of the worst when they don't have complete information, and surprises breed distrust. On the other hand, you must provide some degree of filtering by challenging yourself because perception is not always reality. If you are a very optimistic person, you might be totally oblivious to problems and wind up providing only positive feedback to your investors. The opposite can result in an impression that the company is problematic. So, be open, but balance your views by having people around you who see things differently.