Software startup ServiceTitan, which about two months ago was trying to raise $900 million in a form of pricey debt-like funding, is going a different route—one that involves a different kind of pain.

The company has held talks within the last few weeks to raise about $600 million in traditional equity from investors including TPG, at a valuation about 20% lower than the $9.5 billion valuation at which it raised funds last year, according to people familiar with the matter. It has already raised another $250 million from the more expensive debt-like financing from Coatue Management and Dragoneer Investment Group, according to people familiar with the deal. Its decision demonstrates the difficult trade-offs startups face in raising money nowadays, often on onerous terms.