The following from our partner in Pacific Royalties, is the response from Bard, the new Google tool for using ChatGPT, to the 4/1/23 assignment “Tell me about the use of revenue royalties as an alternative asset class, and how this new method of financing offers options over traditional debt and equity financing structures for private companies.”

All other current Chat AI projects you may see use the original ChatGPT engine and database; this system from Google has entirely different genealogy.

I gave Bard the underscored assignment above, and give it pretty good marks, as a start. There are some added points, and some corrections, and things I would express differently.

 

                                                                           Revenue Royalties

Revenue royalties are a type of alternative investment that provides investors with a share of the future revenue generated by a company or asset. This can be a more attractive option for investors than traditional debt or equity financing, as it offers the potential for higher returns with less risk.

There are several reasons why revenue royalties are becoming an increasingly popular form of financing for private companies. First, they offer a way for companies to raise capital without giving up control. With traditional debt financing, a company must agree to make regular payments to the lender, which can be a burden on cash flow. With equity financing, a company must sell a portion of its ownership to investors, which can dilute the ownership of the company’s founders and other shareholders. Revenue royalties, on the other hand, do not require a company to make regular payments or give up any ownership.

Second, revenue royalties can provide a more stable source of income for investors than traditional investments. With stocks, the value of an investment can fluctuate significantly based on market conditions. With bonds, investors are typically paid a fixed interest rate, which can be eroded by inflation. Revenue royalties, on the other hand, are typically paid out based on a percentage of the company’s revenue, which is less volatile than stock prices or interest rates.

Third, revenue royalties can offer investors a higher return than traditional investments. With stocks, investors typically earn a return on their investment through capital appreciation. With bonds, investors earn a return on their investment through interest payments. With revenue royalties, investors can earn a return on their investment through both capital appreciation and income payments.

Overall, revenue royalties offer a number of advantages over traditional debt and equity financing. They can provide a more attractive investment for investors, and they can be a more flexible financing option for companies. As a result, revenue royalties are becoming an increasingly popular form of financing for private companies.

Here are some of the benefits of using revenue royalties as an alternative asset class:

• • Potential for high returns: Revenue royalties can provide a high return on investment, as they are typically based on a percentage of the company’s revenue. This means that investors can earn a return on their investment even if the company’s stock price does not appreciate.
  • Low correlation to traditional asset classes: Revenue royalties are often less correlated to traditional asset classes, such as stocks and bonds. This means that they can provide diversification benefits to a portfolio.
  • Tax benefits: In some cases, revenue royalties may be eligible for tax benefits, such as depreciation or amortization. This can further increase the return on investment for investors.

Here are some of the risks of using revenue royalties as an alternative asset class:

• • Lack of liquidity: Revenue royalties can be illiquid, meaning that it may be difficult to sell them if you need to access your capital.
  • Risk of default: The company that is paying the revenue royalties may default on its payments, which could result in a loss of income for investors.
  • Risk of competition: The company that is paying the revenue royalties may face competition from other companies, which could reduce its revenue and the amount of royalties that it pays.

Overall, revenue royalties can be a good investment for investors who are looking for high returns and diversification benefits. However, it is important to be aware of the risks before investing in revenue royalties.

Overall, revenue royalties can be a good investment for investors who are looking for high returns and diversification benefits. However, it is important to be aware of the risks before investing in revenue royalties.

The two following links from Pacific Royalties, are cited as sources, along with several others; Bard took a pretty deep dive into them, took about 30 seconds- https://bit.ly/3GqIU9y  https://bit.ly/3MqT8L1

 

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