Professionally investing in revenue royalties (royalties) can be a socially constructive and highly profitable activity.
It is easier to assess a company’s future trend of revenues than it is to predict levels of profitability. It is better, as an investor, to receive a percentage of daily revenues, than having to await dividends, a portion of the proceeds of a sale of the business or to benefit from a “greater fool” theory, as reflected in an IPO.
Well-structured royalties, issued by companies achieving at least the projected increasing revenues, will generate substantial returns for the investor and non-equity dilutive funding for the royalty issuer.
The payments received by the royalty investor are income tax free, until the investor has recaptured the amount invested in the royalty. Thereafter, the royalty payments are taxed as ordinary income. Some investors may wish to donate the royalty to a non-profit organization, taking a permitted tax deduction, as a means of transferring a benefit in a tax efficient manner.
The royalty investor is not concerned with a royalty seeking company’s issues of executive compensation, research budget, corporate affiliations or policies, staff benefits, etc. All these issues, and many others, can conflict with the interests of the founders and controlling shareholders of the business.
Royalty payment are tax deductible to the royalty issuing company, whereas funds used to repay debt are not deductible, making royalties even more attractive to business founders and controlling shareholders.
The royalty investor can require evidence of a company’s product or service present or potential customer demand. The investor can obtain an independent assessment of the product or service offered by the company.
Royalty payments can be assured by third parties. There can be agreed minimum levels of royalty payment. There can be penalties for revenues being materially less than those which have been projected by the company.
As royalties will be a negative for those providing future financing or equity investment, the royalties I recommend contain a royalty issuer’s right of redemption, allowing the company to redeem the royalty, thereby terminating the royalty payment obligation. The basis of the redemption being payments, in addition to the cumulative royalty payments already made, which will at least be an agreed multiple of the investor’s cost of the royalty.
Royalties can be combined with debt and other securities issued by the royalty seeking company.
The royalty investor can require audited and otherwise verified revenue data. The royalty investor can require the royalty issuing company exclusively use specified banks and have access to information from those accounts.
The royalty investing entity should have available both a cash flow and credit analyzing capability.
The royalty issuing company can be required to advise the investor of specifically agreed events and the anticipated financial results as occurring, as well as in scheduled review sessions.
The funds received by the royalty issuing company should be required to create and increase revenues, as the investor is only interested in the agreed sharing of revenues.
The funds received from the sale of a royalty should be used in increase employment and facilities. These are both positive for the communities in which the company is operating. Of course, royalty investors can focus their purchase of royalties from companies headquartered in specific locations or in certain industrial segments. For example, the financing through royalties, of franchisees has many advantages.
If the above could be of interest to you or your organization please contact me, as I believe that together benefit can result.
Arthur Lipper, Chairman arthurlipper@gmail.com
British Far East Holdings Ltd. 858 793 7100 PST
* venvest.com is a domain which I have had unused for many years. The use of the name is not required. I will also assist in the funding and development of the royalty investment business envisioned, if desired.
** I seek an investor interested in managing and developing a business of achieving higher returns, with less risk, than is usually available from managing a portfolio of securities. I wish to advise the owner of the royalty investment enterprise. As well as being a highly visible champion of royalties, I am the U.S. patent holder covering several of the approaches recommended in purchasing royalties. I am also the author of books and articles regarding royalties. My background includes founding and being chairman of two NYSE member firms, serving only institutional investors. I was also the Publisher and Editor-In-Chief of Venture, The Magazine for Business Owners and Entrepreneurs, which had 450,000 paid subscribers, making it the country’s 5th largest monthly business magazine. In this role, I was able to learn about the success and failure of many privately owned companies.