Mezzanine financing is a hybrid of debt and equity financing, typically structured as subordinated debt with warrant coverage or convertible features. It is junior to senior debt but senior to equity, with warrants giving the lender equity upside in addition to interest payments. It is used at growth-stage and pre-IPO companies that need capital but want to avoid equity dilution, sitting between traditional debt (senior, secured, lower interest, no equity) and equity (full ownership stake, no debt obligations) in the capital structure. It is uncommon at early-stage venture-backed startups but appears at growth and pre-IPO stages where companies have stable enough cash flows to service debt.
The mechanics:
Structure: subo...