Q:

Is it a good idea to accept a £2 million debt-based investment?

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. 

A:

Please confirm: Are they asking for the entire sum to be paid back in full AND for 25% ownership? If so, I think that means they're getting 25% for, essentially, the cost of the interest they aren't charging on that loan. 
Run the numbers and figure out how much that actually is, and then think about how much you need this infusion of cash right now (whether you'd take out a loan at this effective interest rate) and whether someone else is likely to make you a better offer for that amount of ownership.

