Hope is defined as a “feeling of expectation and desire for a certain thing to happen”. Some synonyms are wish, expectation, aim, plan, ambition, yearning, craving, longing, and dreaming.
Plans are an assemblage of hopes. If things are going well then, the desire is for more, and if going badly then, the want is for a change. Hopes are best conceived from high ground, where restrictive barriers are minimized in significance by the one hoping. Hope can be a positive motivating factor, especially when it is collected into becoming group hopes. Hopes can be socially positive or evil. Hopes are the basis of religions and political segments. Hopes can be for or against something. Hopes are frequently totally dependent on the actions of others.
Hopes should not be the basis for the investment of other people’s money, as results are unpredictable.
In business, especially business creation, the hope is for many things, including the following: the continued good health and involvement of those critical to the effort, the ability to guess accurately and arrange for the necessary financing of the enterprise, the terms of later investor participation will be fair to prior investors, the creation and protection of the intellectual property resulting in a product customers will want and be able to afford, the needs of the customers will continue to be that for which a solution is being developed, that competitors are not successful in a similar endeavor,
that government regulation does not become adverse, that people and supplies needed are and continue to be available on satisfactory terms and that geopolitical events remain favorable to that required by the business.
Also hoped for, is that projected events evolve as has been hoped to occur and as scheduled. It is hoped there will be an increase in the future valuation of the shares of a company, rewarding the risks accepted by early investors. It is hoped the valuation increase will be the result of company performance. It is additionally hoped that future investors will believe that whatever company success has been experienced will be expanded, justifying still higher valuations.
Revenue royalties are reflections of realism, not hopes. They are agreed percentages of revenues which have occurred. The investors and royalty issuing companies can agree as to what might be a fair minimum financial return for the risk accepted in an agreed period, and the royalty so structured.
A royalty can be structured so the investor receives an agreed minimum Internal Rate of Return (IRR). The return can also be of a premium percentage to that of fixed return obligations. If theoretically riskless returns, possibly of government obligations, is an annual 2%, then an investor return for investing in X company could be 10 times as much, or 20%. Were that to be agreed then it is only a matter of recognizing the time of receipt by the royalty investors of the agreed royalty payments, during specified periods. For instance, a royalty could terminate in an agreed period after the royalty investor had received an IRR of 20%. There are also other ways of structuring royalties to realistically reflect the royalty issuing company’s achievement, versus the hope of those receiving the use of investor funds.
Arthur Lipper, Chairman arthurlipper@gmail.com
British Far East Holdings Ltd. 858 793 7100 PST