Mezzanine Capital
How It Works —
You receive a large sum of capital and only pay interest while using the capital. Repayment is made in large payments at the end of the agreed-upon timeframe.
Example —
Company receives $30M in Mezzanine Capital that requires 15% interest payments for the next 3 years. The company pays back the full $30M plus any other required fees at the end of the loan.
You Might Be A Fit If —
- Your business has reached a significant scale.
- Your company needs an additional capital infusion before hitting a major milestone such as IPO, Acquisition, or cash flow positive.
Why You Would Use This —
Companies are able to take full advantage of the capital during the loan period by only paying interest payments.
Mezzanine financiers will work with other lenders and can provide you with additional funding if you already have other debt.
Large and flexible capital with much less dilution and loss of control than an equity round.
What TO WATCH OUT FOR —
The large repayment amount at the end of the loan can be difficult for companies to make.
Using the capital to reach profitability or liquidation events can provide the company with capital to support the repayment amount.
Warrants can be costly to the business and could require percentage points of the business.
Evaluate the relative cost if you raised the same funding amount in the last Venture Capital round.
Avoid triggers that offer more Warrants based on milestones.
lenders may ask for the ability to exercise warrants before an exit of a business. Some investors may interpret this as lost confidence in the business.
Work with a lawyer that has experience with warrants to properly navigate the risks.
Venture Debt can include a “Material Adverse Change” clause that allows a lender the right to not fund the loan or ask the company for immediate repayment if the business sees significant hardships.
Do some diligence on the lender to understand how they might react or how they have supported businesses in hard times.
