Testing the Water and Possible Bank Involvement in Royalty Transactions

Having recently been asked by a first-time royalty investor if there were others who might wish to be involved with a particular investment opportunity or any of its surrounding details, I asked a friend who is a senior officer of a major commercial bank, if his bank would like to meet and collaborate with the investor. Following are a number of ways in which the bank might choose to be involved, thereby establishing a contact with an important new account.

Ways in which a large commercial bank, could collaborate with a wealthy investor, in the investment of a royalty, issued by a revenue generating company, having significant revenue growth potential

Co-invest: The bank, as either a principal or agent, could invest in the royalty.
Financing: The bank could offer to lend the investor the funds used in buying the royalty.
Administration: The bank could provide the services of collecting the agreed royalties paid by the issuer.
Banking: The bank could provide commercial banking services for the issuer.
Liquidity: The bank could agree to purchase the royalty from the investor at the investor’s net cost.*
Reinvestment: The bank could agree to reinvest the royalty payments received from the issuer.

First-time investors in royalties are naturally a bit skeptical whether they will be rewarded as fully as projected, even though they anticipate minimized investment risk due to the fact that their royalties are collected immediately by third-party agents, upon the issuer’s required deposit of all revenues in an investor approved bank. Being the first in line for payment is a preferred position for an investor, especially as the revenues increase. Once the total of royalty payments equals the amount paid for the royalty, all future payments received are essentially risk free.

This is an equivalent point of recouping invested capital as when the dividends received by a shareholder total the amount paid for a stock, however revenue royalty payments are more attractive because dividends can only be paid from profits and are paid only when the company’s Board of Directors decides to pay them. Also, for American tax payers, dividends are ordinary income, whereas royalties are a return of capital until the amount paid to the company for the royalty has been returned to the investor.

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

Arthur Lipper, Chairman
British Far East Holdings Ltd.
+1 858 793 7100

* British Far East Holdings Ltd. could also provide liquidity.



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Blog Management: Viktor Filiba

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