At what growth stage should an enterprise utilize debt vs equity financing? What are the benefits and disadvantages of accepting first-loss capital, project or results-based financing? There are several investment options. Apart from straight equity or straight debt, a company and an investor can ‘mix’ the characteristics of both types to create a mezzanine investment.
- Mezzanine can help to shape the deal between Entrepreneurs and Investors, when straight debt or equity provides too little upside, is too risky, or has limited exit potential.
- Combinations between mezzanine/equity and debt can be made and can be used when investment ticket sizes are large compared to the company’s valuation.
- Blended finance (a combination between debt/equity/mezzanine and a grant) can help a company grow while equity, debt and mezzanine are out of reach. When using blended finance, organizations need ensure that they have scalable unit economics, while avoiding ‘mission drift’; thus, keeping their long-term mission in mind at all times.