In designing the above “Balanced Vision” logo, I used the distance-looking telescope, as the investor’s tool and role in assessing the balance between the valuation of risk and reward.

The essence of successful investment is the correct judgement of the comparative level of risk and reward. Success is benefitting from the magnitude of reward being far greater than would have been the burden of risk. Of course, the use of leverage compounds both the potential risk and reward levels of the transaction.

My belief, as is stated in the use of the logo, is that “Royalties are the better way of both investing in and financing privately owned companies”. It is easier for the investor to assess the likely demand by the company’s prospective customers for the product or service planned to be offered, than to assess the company being able to achieve its objectives, including profitability. This is especially the case with early-stage and technology-oriented companies.

Using a revenue royalty is also much better financially for the company’s founders, if the funds received for the sale of a percentage of defined revenues, generated during a period, are sufficient to achieve a success enabling subsequent financings to be negotiated on more favorable terms. Structuring the terms of revenue royalties so that they are attractive to investors is the service we offer. A critical element of a revenue royalty agreement is the royalty issuer’s right of redemption, which provides the mutually agreed terms whereby the issuer may terminate the royalty.

Equity dilution is the company founder’s wealth limiting factor if the company becomes successful. If the company fails to achieve its financial or other strategic objectives, then it may be in the founder’s best interest to have used the traditional means of financing, whereby investors will own most of the company and bear the brunt of the loss.

 

Arthur Lipper, Chairman                          arthurlipper@gmail.,com
British Far East Holdings Ltd.