In venture capital terminology, the term Mezzanine Financing refers to the financing of a company through the issuing of subordinated debt instruments. Mezzanine Financing can also include the company issuing preferred stock, warrants and stock options.
For example, Mezzanine Financing allows for money to be raised by a company without selling more common stock and without issuing more corporate debt. This is done by combining the two in financial instruments which can be converted into corporate equity if the debt is not paid back within the specified period of time. This type of debt is also subordinated to the debt provided by senior lenders such as banks and venture capitalists. Because this financing is generally provided quickly to the borrower and with little or no collateral from the borrower, lenders generally expect an annual rate of return of between 15% and 30% on their investment.