Mezzanine Financing

A hybrid of debt and equity financing, often used just before an IPO or acquisition.

Definition

Mezzanine financing is a hybrid instrument that combines features of debt and equity, typically used in late-stage or pre-IPO situations. It often involves subordinated debt with equity warrants attached. Mezzanine investors accept higher risk than senior lenders but lower risk than equity investors, and expect returns between the two. It is common in buyouts and bridge-to-IPO scenarios.

Why it matters

If your company takes mezzanine financing, it often means an IPO or acquisition is imminent. The structure can affect how proceeds are distributed at exit, since mezzanine debt gets repaid before equity holders.

Example

A company raises $50M in mezzanine debt at 12% interest with warrants for 2% of equity. If the IPO happens in 12 months, the lender gets $56M back plus the upside from warrants.

Related terms

Venture Debt

Loans to venture-backed startups, providing capital without as much dilution as equity rounds.

Initial Public Offering (IPO)

When a private company first sells shares to the public on a stock exchange.

Late Stage

Companies that have raised Series C or later and are approaching IPO or acquisition readiness.

Growth Equity

Investment in established, profitable or near-profitable companies to accelerate scaling.

Liquidation Preference

Investors' right to get their money back before common shareholders receive anything in an exit.

Bridge Financing

Short-term funding to bridge a gap until the next major financing event.

More from Funding Rounds

This definition is an educational summary. It is not legal, tax, or investment advice. Specific terms in your equity grant or company documents may differ.