Now that we have identified a means of reducing royalty investor risk in financing early-stage company development using recovery of capital guarantors, we want to increase the number of companies seeking funding.
Royalty guarantors are investors guaranteeing the royalty issuing company’s royalty investors that they will receive, by the end of an agreed period, payments of at least the amount paid for the purchased royalty. The guarantor will be paid a fee by the royalty issuing company of an agreed percentage of the amount received from the investor. The guarantor’s provision of the option eliminates the royalty investor’s risk by providing an option to the royalty investor to buy from the investor the royalty for the amount paid, less the value of royalties received. The royalty issuing company will also indemnify the guarantor against loss.
Were, by the end of the agreed period, the company to have paid no royalties to the investor, the guarantor’s commitment would be to pay the investor the full amount paid for the royalty. However, had the investor received royalty payments of less than the amount paid for the royalty, the balance is the amount which would be required to be paid to the royalty investor, should they wish to sell the royalty to the guarantor. The option terminates on the payment to the investor of the amount paid the investor equaling that paid for the royalty. Also, it is possible the investor would not wish to exercise the option in the event the issuing company’s revenue growth prospects for the remaining period of royalty entitlement to be deemed attractive.
Ok, so the guarantors seem to have a good deal, if the company is generating revenues, as a fee will have been received and the royalty has value. The company obtained the amount paid for the royalty and will be closer to achieving its goals. However, if the company is no longer operational its indemnification of the guarantor is unlikely to be enforceable or have any value, with a total loss for the guarantor probable.
The Assured Result Revenue Royalty (ARRR) royalty approaches, which offer high investor and short-term returns, are likely to be for 5-years or less, are growing in use and acceptability. They become increasingly doable if there is a guarantor involved. Of course, the terms of the guarantor’s fee will impact that which is offered the ARRR royalty purchaser.
A doubling (2x) of investment or wagered amount in 3-years is currently available. The annual return would be greater than 26%. There is also a $2.0 million deal being shown in which there is an 3X multiple of cost return offered in 3-years indicating a minimum of a 44% annual return.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
+1 858 793 7100
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