Revenue royalties, from the perspective of business owners, are simply a better approach to capital formation because they are non-equity dilutive, which means the investors own no part of the company selling the royalty. The Royalty Agreement requires the payment of a percentage of the company’s defined revenues generated during an agreed period.
We recommend that an Issuer’s Right of Redemption be included in the Royalty Agreement. This right requires the issuer having paid the investor, within an agreed period, a cumulative amount to prematurely terminate the payment period agreed in the Royalty Agreement.
From the investor’s, perspective royalties are more attractive because: (1) royalties are not impacted by the reported profitability of the company generating the revenues; and (2) investors own a percentage of the company’s revenues, but not the company itself.
Therefore, contentious issues of executive compensation, company policies, and a range of matters usually confronting equity investors are not of concern to the royalty investor. The royalty investor is very much focused on sustainability of the company, and the Royalty Agreement will address investor remedies and protections.
If the company seeking funding becomes successful, the original shareholders will regret having used equity related securities to raise the required capital if there had been royalty investments available. The recommended issuer’s Right of Redemption allows for the company to terminate the royalty.
In our rex-basic.com website there are sample cases in each of our patented approaches. We are in business to assist both investors and companies in the structuring and use of royalties in the raising of capital.