By Alistair Barr and Sarah McBride

SAN FRANCISCO (Reuters) - Foursquare said on Thursday it raised $41 million in a new financing round that relied on debt, rather than equity, to give the location-based start-up the money it needs to keep expanding.

The cash came from a new investment by technology private-equity firm Silver Lake, through its Waterman growth debt fund, as well as existing investors Andreessen Horowitz, O'Reilly AlphaTech Ventures, Spark Capital, and Union Square Ventures, Foursquare founder Dennis Crowley wrote in a blog.

The Silver Lake money is a loan that has to be repaid over several years. Existing investors bought the convertible debt, according to Fred Wilson, principal of Union Square.

Debt financing is unusual for start-ups, which typically rely on selling equity to early investors. Resorting to debt is typically considered a sign of stress in the venture capital community. It mounts pressure on young companies, which may not have a lot of revenue or earnings to repay such obligations.

LivingSocial, a struggling daily deal start-up that competes with Groupon Inc <GRPN.O>, had to issue new equity with debt-like aspects, such as an annual dividend, in its latest financing round earlier this year.

Foursquare launched to much fanfare in 2009, but has since struggled to generate revenue from its business. The company is now focusing more on its search capabilities, which allow users to track down stores and other physical locations through smartphone apps.

Foursquare will have to pay interest on the new debt it issued to Silver Lake. Interest is also typically paid on convertible debt. Later on, this type of security can convert to equity in certain agreed-upon circumstances, potentially diluting existing shareholders' investments.

"My general take on convertible debt is that it's very good for the founders and not very good for the investors in seed and early stage investments and a much better solution in late-stage financings," Union Square's Wilson wrote in a blog on Thursday.

For Foursquare, convertible debt is the "optimal solution for everyone," Wilson added.

"This round is not dilutive to the Foursquare management at this time," Wilson said. "But it will be dilutive when the debt converts into equity, most likely at the next equity issuance."

(Reporting by Alistair Barr; Editing by Bernadette Baum)