Mezzanine capital

Mezzanine capital is a hybrid form of financing that combines features of equity and debt. The name comes from the Italian "mezzanino" (intermediate floor).

Typical forms:

1. Subordinated loan:

• A loan that, in the event of insolvency, is serviced AFTER all other creditors
• Higher risk = higher interest (8–15%)
• Very common in crowdinvesting (Exporo, Bergfürst)

2. Silent partnership:

• The investor provides capital and shares in the profit, but doesn't become a shareholder
• Typical: family businesses that don't want to give up voting rights

3. Profit participation certificates (Genussscheine):

• A security with profit participation but no voting rights
• Historically popular with German banks

4. Convertible bond:

• A bond that can be converted into shares
• Popular with start-ups and tech companies

Advantages for companies:

• Counts as quasi-equity on the balance sheet (improves creditworthiness)
• No voting rights for the lender (control remains)
• Tax: interest is often deductible as a business expense

Risk for investors:

• Subordinated = in an insolvency, you only get your money AFTER all the banks
• In practice: insolvency often means a total loss
• Crowdinvesting property projects with subordinated loans: many defaults in 2023/2024 (Eyemaxx, Traumhaus AG)