Overall, EMPEA’s findings suggest that the development of mezzanine financing in emerging markets has followed a distinct trajectory, evolving to take advantage of the opportunities present in markets characterized by both high growth and capital scarcity.In these environments, savvy investors are able to structure deals to secure both upside participation and downside protection, and ultimately provide institutional investors with an attractive risk/return profile.Access to finance is one of the most prevalent challenges facing entrepreneurs and business owners across the emerging markets.
Mezzanine financing sits above equity and below senior debt in the capital structure and encompasses a wide range of debt and equity positions.
The various structures that mezzanine investors employ include secured subordinated debt, convertible subordinated debt and preferred shares.
Mezzanine deals in emerging markets typically fall into two buckets: sponsored deals, where the mezzanine lender is part of a consortium including equity investors, and non-sponsored deals, where the mezzanine investor lends directly to the portfolio company.
Unlike in the West, where the mezzanine market is more developed and commoditized, typical mezzanine transactions in emerging markets involve active relations between the lender and the borrower or equity sponsor.
Through combinations of these and other instruments, such as payable-in-kind loans and equity warrants, mezzanine providers are able to move up and down the capital structure to achieve a desired risk/return profile.
This flexibility in structuring deals enables mezzanine investors to create a blend of downside protection and upside participation, tailor-made to each investment opportunity and the cash flow profile of the targeted firm. Based in Berlin (Germany), Bitbond is a peer-to-peer lending platform that specializes in providing loans to online sellers and small businesses.The platform uses bitcoin as a payment network and is therefore available to everyone who has access to the internet.Frequently, this also applies to the financing of a retailer’s activities.As a financial product, loans and credit lines are often untried territory for online sellers.Vanderlip emphasized the absolute necessity of something being done.