Instead of raising debt + equity, raise convertible debt from equity investors.
Instead of being at the bottom of the waterfall, now the equity investors are:
• Top of the cap table (= safer),
• Receive interest payments (= dividends from day 1), and
• Still own the upside potential (= raison-d'etre).
Common in VC. Uncommon in IS.
GPs might even get away with better economics too. Instead of being stuck with the standard 20% carry, the safety & dividends can justify setting the conversion to 65%-70% (thereby retaining 30-35%).
Works especially well for rollups, very cheap deals, less bankable targets.
