Managing a royalty income fund is very different than managing a pool of capital dependent on purchasing shares of companies expected to appreciate based on both factors within and beyond the control of company managers. Those risks are higher than purchasing royalties from companies expected to have increasing revenues. There are fewer variants and dependencies.
Managers of royalty income funds must have an ability to assess the royalty offering company’s achievement of projected revenues and, at least as importantly, understand the structing of royalties which provides fair and reasonable investor protections. We can help with the latter requirement.
Making additional amounts of money is not the likely motivator as this individual has already achieved their own definition of “enough”.
Doing something good for others is a broad and logical rationale which justifies the contemplated effort, especially if we are to assist with the royalty structuring, negotiations and arranging of the necessary mechanics. The benefit can be for the founding owners of the fund, or prospective owners including charitable organizations. The ownership of the fund can be donated in order to provide a continuing source of income for not-for-profit entitles as well as other beneficiaries. The fund can be structured with the expectation of earning more than a 15% annual Internal Rate of Return, which is an outstanding low risk related return.
The companies able to sell a percentage of their revenues, rather than a percentage of their ownership, will benefit from royalty funding in many ways. The owners / managers of the business will retain full control and the acquired benefit from royalty funding will allow both greater profits and higher valuations if further financing or the sale of equity is later desired.
Communities and society will benefit because businesses that expand through royalty finance typically employ more people, pay their staff higher wages, use larger facilities, and satisfy their customers more by providing better and a greater number of products or services.
Having the power to make decisions resulting in transactions benefitting more than just the investor is both fun and a social contribution.
The difference between investing in shares of companies versus investing in a share of revenues is that there is an inevitable and inherent conflict of interest between the outside investor and the company’s controlling shareholder, which is not present when a royalty is used in the financing of the business. Royalty investors are not concerned with the company’s executive compensation policies, retirement plans or executive perks. The royalty investor is only focused on company sustainability and growth of revenues.
Therefore, for a number of individuals who have already achieved success, it would be more socially constructive and rewarding fun to: increase one’s wealth, remain active and relevant; and at the same time help others make money not only because of one’s prior success, but also because helping others to succeed is a noble objective.
We can help and we will all benefit as a result.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
858 793 7100
Data sources: arthurlipper.com, which is my royalty-focused Journal
REX-Basic.com, which is the first and simplest of 4 approaches and 6 website calculators. Ebook and print versions of “Revenue Royalties” and “Off The Top”, both available at amazon.com
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