Internal rounds deserve more love than they get

Recently, we’ve been diving deep into how fundraising decisions shape companies across stages - from leveraging debt to securing government grants. But today, we want to talk about something that doesn't get nearly enough love: the internal round.

Some of the most well-known companies have leveraged internal rounds strategically. Uber used multiple bridge rounds to fuel their rapid global expansion, while DoorDash famously raised a $400M bridge round to strengthen its infrastructure before going public. These were all strategic moves in hindsight that helped these companies build from positions of strength.

Let's address the elephant in the room: internal rounds have a bit of an optics problem. There's this persistent "distressed asset" narrative that somehow stuck around, even though many bridge rounds have been top performers. When done right, internal rounds are one of the best ways to buy time, protect valuation, and keep building - without the fundraising circus (let's call it what it is).

When is an internal round a good idea?

A lot of people believe that a bridge round means you're doing okay, maybe even good, but not quite well enough to attract a next-round investor yet. But if you're focused on execution, here's when tapping your insiders is actually a smart play:

• When time is of the essence: Let's say you need capital now. An external raise will take you at least 3 months in the best-case scenario. From first conversation to money in the bank, you'll be buried in decks, diligence, and paper pushing. Internal rounds move faster - standard docs and incentives are already aligned, and there’s no need to re-explain the story. In some cases, it can be a 2-week turnaround. Speed is underrated, especially when you're building in real-time.

• When you're close to a milestone, but not there yet: Maybe you're 4-6 months away from your inflection point: launching that new product, hitting a revenue mark, or signing a partnership. You could raise now, but you'd be negotiating from a weaker position. Internal capital helps you buy time, hit that milestone, and raise your next round with leverage. 

• When signaling matters: Fundraising extends beyond capital - it's also about narrative construction. Approaching the market prematurely or without demonstrable traction can inadvertently signal desperation to potential investors. Even if the round successfully closes, this perception often persists and can impact future fundraising efforts. A well-constructed internal round can effectively invert this dynamic: it communicates that existing investors possess sufficient confidence in the business to fund the next growth phase independently. 

• When you don’t want to haggle on valuation: Internal rounds are often structured as SAFEs or convertibles, typically at a 15-25% discount to the next round, with a floor and a cap. So you're not stuck trying to maximise price today. You can stay focused on growth, hit your milestones, and raise later, when the business justifies a stronger valuation.

When you need to wait out bad markets: This is particularly relevant given what we saw in 2022-2023. While many companies faced valuation compression and struggled with poor terms, smart founders used internal rounds to preserve optionality during economic uncertainty. They built stronger metrics while competitors struggled, positioning themselves better for when markets recovered.

Founders often underestimate this. In a market where only ~30% of companies that raise a seed go on to raise a Series A, signaling health and momentum matters more than ever. 

However, here’s when NOT to do an internal round

They're not a magic solution. Avoid them if you're covering up fundamental business problems,  or if you're delaying an inevitable pivot or shutdown.More capital from insiders isn't going to fix the core issues.

The key is being honest about why you're considering it. Are you buying time to build something stronger, or are you avoiding difficult conversations about the business's direction?

Used right, internal rounds help you move faster, stay focused, and build from a position of strength. Your investors know the business. They believe in the upside. And if they're ready to back you again, it's usually because they know what's coming next.

As Packy McCormick put it, "The future belongs to companies that combine the world's best engineers with the world's best financial engineers."