Foursquare announced this week it raised $41 million. But there’s a catch: a good portion comes in the form of convertible debt from existing investors in the local check-in network. And that’s a form of financing that sends mixed signals about the company’s prospects.

In prior funding rounds, Foursquare has been financed via equity. In other words, investors put in money in exchange for a chunk of the company, the sort of transaction that puts an total value on the company. Foursquare’s valuation spiraled steadily upward for its first three rounds, reportedly hitting $95 million and then $600 million.

With convertible debt, the lender’s loan converts at some future date to equity, though it retains the option of being paid back in cash (which usually doesn’t happen). That means you can’t really ascribe a valuation to a company during a convertible debt round, which is probably why the round was attractive to Foursquare. The startup was already richly valued at $600 million with a reported $2 million in revenue last year, and it would not want to close this fourth round at a lower valuation, since that would imply it had overcharged prior investors.

In a post on his popular blog, Fred Wilson, whose Union Square Ventures participated in the convertible debt round, said he was glad he did not have to place a valuation on Foursquare, even though USV did just that in a prior round, when Foursquare was an up-and-comer.

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