Providing for others is noble and socially constructive. Doing so with a well selected portfolio of royalties is intelligent and better for all concerned.
The contribution of money to many well-intended organizations can be both socially constructive and donor satisfying. However, the reality is that for most groups performing ongoing service, there is an annual need which will continue and probably increase for many years.
In a portfolio of royalties issued by established companies there is very little capital risk due to the diversification. The donor can select the companies from which royalties are purchased, including companies in which the donor may have an interest, or we can be of assistance in constructing a portfolio. The royalty issuing companies will agree to use the funds for business expansion, resulting in increased revenues, benefiting the owner of the royalty as well as the owners of the company, the company’s stakeholders and the community.
The value of the portfolio of royalties will increase as the aggregate revenues and royalty payments increase. The recipient organization(s) of this portfolio of royalties will be able, if the donor has originally agreed, to sell any or all of the royalties. Although, it is unlikely the royalty owner will be able to replace the income being received at a similar risk.
Were the royalties to be purchased from promising early-stage companies it is possible the returns could be very much higher, but there would also be a greater portfolio risk. The established companies will likely use the funds to expand marketing, build or acquire added facilities, acquire another company or develop additional products of services. The early-stage companies will use the funds to complete the development of the products or services and commence marketing efforts.
The royalty returns, in Internal Rate of Return terms, for portfolios of established companies should exceed 15% annually over the 10 to 20 years of the royalty payment periods of the component royalties. The returns from the early-stage companies can be very much higher, especially due to the terms of the issuer’s right of redemption, permitting the royalty issuing company to redeem and therefore terminate the revenue sharing obligation at a premium. The redemption terms we suggest can potentially deliver a five-fold return, if exercised within five years or ten-fold of cost return to the investor if within ten years.
The gift of a royalty portfolio to a socially benefiting entity can be literally the gift which keeps on giving increasing amounts. The other social benefits of a benefactor purchasing a royalty from a company’s intent on expansion are significant. We believe that royalties should only be bought from companies dedicated to increasing revenues.
As noted, we can help investors both select companies from which to consider buying royalties as well as to structure and negotiate the terms of each royalty.
The royalty issuing companies will, if they use our patented approaches, be required to pay us a patent and advisory fee. The owner of the donated royalty portfolio will be asked to pay us an agreed percentage of the income they receive, after the aggregate fees received from the portfolio of royalties has reached the amount the donor paid for the portfolio of royalties, including all legal and other related expenses and fees. We are assuming the donor will be able to deduct all of the cost of the royalty portfolio donated to any tax-exempt organization. It is also possible the royalty portfolio owning entity will want us to help in the monitoring of the quarterly royalty collection process.
Because we also wish to help the organization supported by the royalty investing donor, we will agree to contribute to the royalty owning entity, assuming a portion of the income we are paid by the royalty owner, from the overage of the returns generated by the royalty portfolio.
The above will be of particular interest to business owners who have, favorite non-profit organizations.
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Arthur Lipper, Chairman
British Far East Holdings Ltd.
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