Low hanging fruit is usually both the sweetest and the easiest to capture. Low hanging fruit is heaviest and sweetest because it is closest to the source of nutrients and has been nurtured longer than the higher hanging less mature fruit. The low hanging fruit has also survived storms and hungry animals.
Royalty investors naturally seek to purchase royalties from those companies which are most developed and easily accessed. However, the low hanging fruit is not likely to be faster growing at the time the higher hanging fruit becomes desirable. This is because the fruit growing higher in the tree gets more sunlight later in the growth cycle and therefore tends to offer faster, though more problematical, growth than the lower hanging, longer growing fruit.
A premium is typically paid for more mature wine than wine bottled more recently. Also, higher wages are usually paid to more experienced workers than recruits.
Established companies are the equivalent of low hanging fruit, and when they seek funding they have more options and are likely to be less flexible when negotiating royalty terms than are earlier stage companies whose future course of development is more dependent on the financial energy of the proceeds generated from the sale of a royalty. In other words, investors have greater leverage in negotiating with earlier-stage companies.
Therefore, for those seeking greater income with less risk there is an advantage to being ahead of other investors by recognizing the attractions of royalties, especially with regard to the riskier earlier-stage companies.
Arthur Lipper, Chairman
British Far East Holdings Ltd.
+1 858 793 7100
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