Mezzanine Financing

Mezzanine financing (or 'mezz') is a hybrid debt-equity instrument used by mature companies approaching IPO or major expansion. Unlike typical VC preferred stock, mezz financing often takes the form of subordinated debt with equity warrants or conversion rights. Mezz sits between senior debt (first to be repaid) and equity (last in line) in a company's capital structure — hence the name (mezzanine = middle floor). Mezzanine lenders accept more risk than senior lenders but less than equity investors, and are compensated with higher interest rates plus upside participation. In the VC context, mezzanine financing typically appears at late pre-IPO stages for companies needing large capital infusions without further equity dilution.