I am a co-founder of a tech startup which launched earlier this year, we have a live website and iOS app and are in the process of seeking investment to take the project to the next stage and start to generate serious revenue.
Our current valuation is £1million. However, we have been offered £2million by an investment group. This would not be offered as traditional equity. Instead they are requiring both equity and debt. They want 25.1% equity, and the loan is due to be paid back with 6% interest. Debt payback would begin 2 years after we sign the contract.
I am unfamiliar with debt investment, is is common idea? Does this sound like a good idea for us? I would hope that after 2 years we were generating enough profit that we could pay £10,000 back per month without breaking a sweat. The £2million would really give us the ability to break into our market and move forward quickly. Are debt investments good for young startups? Are there any problems which may occur with this style of investment?
EDIT: The creditor does not want veto power or voting shares, and the debt is signed to the company not to any individual founders. There are some alternative investors, but not at this amount, instead they are at the 150-300k amount. We have no revenues at present, and our cash zero date is around the corner. In 2 years, when we have to pay back the loan, we should be gaining about 46k per month profit.