Royalty Revolutionary? - Arthur Lipper

In the comments to his San Diego Reader column announcing his retirement, Don Bauder, formerly San Diego’s senior financial journalist, posted the following comment “Arthur Lipper: You are a revolutionary in the royalties movement. Best, Don Bauder.”

I was touched, as I had known and respected Don for more than 30 years. I also started thinking about his usually well-chosen words and the description of me he used, “revolutionary,” as this was not something I had ever considered.

Is the logical exposure of fact revolutionary? Is the informing of investors or business owners that there are better ways of achieving their objectives revolutionary? Is it revolutionary to create an awareness of different approaches to gaining higher and increasing income while assisting those who are expanding the size and scope of their businesses? Is it revolutionary to educate and facilitate investors in the making of investments which benefit the society rather than just themselves? Is the suggested payment of a percentage of revenue, allowing a business owner to retain the benefit of proprietorship, revolutionary?

My answer to the above questions is “No, the acceptance of revenue sharing as the basis for business financing will be evolutionary and I believe ultimately inevitable”.

Sooner or later investors will learn that buying a royalty from an established company will provide rising income as the revenues of the company increase. They will also learn that the valuing of their investment is less volatile and risky than owning shares, as the measure of benefit is not the company’s reported profit or loss. Royalty investors are not owners of the business, where tax planning strategy and other considerations may result in the reporting of less than maximum per share profitability. The investor’s analysis and judgment are or should be solely focused on the advantages of the company’s products and services to their customers and the economic outlook for the customers of the company issuing a royalty. For royalty investors, it is only the revenue of the royalty issuer that is important.

Business owners will learn that there is an inherent and inevitable conflict of interest between investors, who usually only buy shares with an expectation of selling them at a profit, and controlling shareholders and senior managers of a business who expect to profit, absent the sale or public offering of shares of the business, from executive compensation, benefit plans and a wide range of perks available to those in control of companies. The interests of controlling and minority shareholders tend to merge on the sale of a company, except regarding the terms of future employment.

Both investors and business owners will easily recognize that expanding the business is in the best interest of the shareholders, royalty investors, current employees, future employees, company suppliers and of course, the company’s customers. Growing businesses are the sought for the heart of communities and the center of the ripple effect benefitting communities.

Therefore, I think of myself as being a crusading visionary, not one wishing to cause a revolution, but one wishing to improve opportunity while reducing risk. I also wish to allow those bearing the burden of private company founding and management to enjoy the benefits without being in conflict with investors or unintentionally assuming the responsibilities of being fiduciaries.

Royalties are the better way of both investing in and financing of privately -owned companies.