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Royalty financing is based on selling a piece of the revenue stream instead of selling ownership. In exchange for a loan, the company gives the investor a percentage of its sales until the investor has received back its principal plus the additional interest that it negotiated with the investor. The royalty payments can be structured over a fixed time period or until the investor reaches a set return
- Does not require the entrepreneur to give up ownership of the company.
- The cost adapts to company performance. This alignment of interests establishes a good foundation for a "win-win" relationship.
- There is no need to have an exit strategy. This type of financing avoids a forced "cash-out" or out-of-state acquisition. Click here to read Royalty Financing Avoids the Exit.
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Allows you to round out your investment portfolio with a more liquid, income-producing deal structure. The deal may only be priced at 15-25% but it supports a higher IRR because the return begins earlier, and does not wait until the business is sold in future years.
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Broadens the type of deals you can invest in, to include the New Hampshire-based companies that offer reasonable, long-term growth. There are only so many gazelle-type companies that are appropriate for equity. There are many more companies that offer solid growth opportunities, but are less than venture grade investments.
- You avoid having to force the sale of the business to cash out, and instead can focus on your roles as a mentor.
Are you an Angel Investor?
Join a growing network of Angels interested in doing deals together with royalty financing. Contact John Hamilton to add your name to a mailing list to view appropriate deals.
For more information, contact John Hamilton, at
224-6669 ext. 239 or at jhamilton@vestedforgrowth.com. |
