The Larry & Barry Dialogues:
A special library section, combining entertainment and analysis
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Articles in this library are provided for educational purposes only. There is no endorsement of any person, company or investment. The discussion herein does not constitute legal, accounting, tax, business, investment or other advice.
1. The Larry and Barry Guide to Revenue Royalties
A collection of dialogues between notional characters in the role of both buyers and sellers of royalties. The conversation answers many of the questions regarding the use of royalties.
2. Profile and Questions Regarding Royalty Issuers
Initial questions a prospective royalty investor will want to know before deciding if there is an
interest in learning more about the opportunity.
3. Thoughts for Portfolio Managers of Royalty Income funds
Increasingly, investment advisors are contacting me for advice regarding the creation of a royalty income fund. This is logical due to the investor advantages inherent in royalties. Investors, as well as investment advisors, will find this advice to portfolio managers of interest.
4. Larry & Barry Discuss What’s Wrong With Royalties
Using a negative question to describe the positives of royalties Larry and Barry have a dialogue Larry and Barry are partners in a business and have both the perspectives of investors and business owners.
5. Larry & Barry Assess Potential
Larry and Barry consider buying a royalty from a company and discuss the research which should be done and how to do it prior to reaching to a decision if they want, on the terms offered, to buy the royalty.
6. Why Royalties Are the Better Way of Financing A Business
A simple pitch to business owners seeking non-equity dilutive financing.
7. What’s Good and Bad About Royalties
A listing of some of the good and bad aspects of using royalties from both the investor and the business owner’s perspective.
8. Data needed for creation of a possible royalty financing
Bare minimum data required from a business owner wishing to consider using a royalty financing.
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9. Raising Capital for a New Business
Very basic and fundamental talk text for University of Hawaii presentation regarding royalties.
10. Tax Issues for Royalty Issuers and Investors
Both buyers and sellers of royalties are advised to seek the advice of their own tax advisors. The tax treatment will be different for royalty investors and companies using royalties to raise capital in various jurisdictions and possibly circumstances.
11. Larry and Barry present royalties to an aggressive investor
Larry and Barry pitching an aggressive investor on the advantages of royalties as an investment.
12. Larry and Barry presenting royalties to a business owner
Larry and Barry explaining to a business owner why using royalties in financing a business is the best approach.
13. Larry and Barry presenting royalties case to a cautious investment manager
Larry and Barry assuring a cautious investor that investing in royalties is a responsible and less risky practice.
14. Use of Royalties by a University
Using royalties to finance university and other non profit research projects which are believed to have commercial merit with predictable revenues from licensing if and when the project succeeds.
15. Discussions and Solution using Royalties
A series of possible discussions between principals — investors, company executives, shareholders, potential lenders, partners — shows how some business issues might be resolved, with royalties as part of the solution.
16. Why it is Difficult To Predict Profitability
Bottom-line profits are difficult to predict, because cost of goods is so variable, competition is inevitable, because of financing, legal changes, tax considerations, management discretion…this article examines these factors and more. Top-line revenues, while still a challenge, are easier to predict — and therefore a more sound basis for investment — than bottom-line profits.
17. Royalties are Different from Dividends
Both royalties and dividends involve regular payments by a company to investors — but they are quite different legally, technically and conceptually. This article examines the points of difference, and why revenue royalties are generally preferred over dividends as a means of generating current income from a company’s operations.
18. Structuring the Financing of a New Business
The factors a business owner may consider, in deciding whether to acquire capital through an equity investment, or through revenue royalties.
19. The Royalty Income Fund: A Vehicle for Investment Managers
The basic structure of a Royalty Income Fund, which aggregates a diversified set of royalty contracts under a common structure, is described. Topics include the special duties of the investment manager, recommended procedures under the BFE royalties patent, and analytical tools to be used.
20. Managing a Portfolio of Royalties
The prospective manager of a royalties portfolio has a number of strategic and policy decisions to make. These include leverage, concentration, sustainability, payment period, variable rates, and compliance — some of which are unique to royalties.
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21. Changing the Way the World Invests
Excerpt: “The most dramatic gains in corporate results and the price of stocks have been in younger or early-stage companies, often privately-held. Of course, these have also been the most likely to result in investor disappointment, because of heightened expectations.
“So what do the above observations indicate? Only a relatively few professional investment managers have been able to competitively excel for a consistent period; there will be an increasing amount of capital available to to invest in early-stage companies; and it is more difficult for investment managers to invest comfortably in publicly traded equities and still meet or beat the benchmark.”
22. The Royalties Advantage: Business Owners
A discussion of the key advantage of revenue royalties from the standpoint of the business owner: retention of their founding equity.
23. Getting a Business Started with Royalties
The key tasks that company management needs to consider in seeking revenue royalties financing are described, the amount of capital sought and making valid revenue projections are discussed.
24. Royalties Portfolio Investment Management Practices
To professionally acquire and manage a royalty income fund portfolio as a responsible fiduciary, certain critical, core skills are required.
25. Royalties Are Better For Private Companies
“To be blunt, most people buying stock or other equity-related securities in privately owned companies have an unsatisfactory experience…the inevitable and irreconcilable different perspectives of investors and founding business owners result in adversarial positions.”
“…the founding and funding of a business is all about money… It is also about gaining power, achieving satisfaction, creating proof of the idea and self-worth, having greater freedom than any employee can expect, being recognized as a person of worth, being free to make mistakes, earning a lot of money and achieving wealth.”
Mr. Lipper addresses the issue of investor exit strategy, and whether entrepreneurs should take the long, patient view or cash out quickly when the opportunity arises. From the Berkonomics newsletter.
28. Will Venture Capital Firms Embrace Royalties?
“VC’s have a great business. They are not likely to support an approach which allows privately owned companies to raise capital on a fair and non-equity diluting basis. VC’s benefit from business owners and royalty investors’ benefit with business owners.”
29. Those Wishing to Sell Royalties
The key steps a company needs to take, in preparation for raising capital through a revenue royalty investment.
30. Management Principles for a Royalty Fund
“Portfolio diversification is a reasonable requirement for a fiduciary-managed royalty income fund — and a 5% maximum exposure to a single royalty issuer is recommended…”
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“‘Risk is the possibility of losing that which has importance to the participant in the activity for which there is not an assured outcome.’ Risking the loss of a small amount of my money is not as important to me as the possibility of others losing an amount which has greater importance to them.’
32. Donating a Portfolio of Royalties
Typically, money contributed to non-profit entities is either immediately expended, or it is invested in traditional vehicles, which provide modest returns. Revenue royalties…increase in value, and the income they generate increases, assuming the revenues of the royalty issuing companies increase.
33. What Business Plans Should Do
Most experienced funders would agree that few if any business plans are strictly or even mostly followed once the enterprise is funded. Experienced venture funders understand that the “conservative” projections made are seldom achieved in the predicted time frame.
34. Guide to Business Owners for Presentation of a Royalties Investment
When a business owner is seeking to sell a royalty base on the revenues of his company in order to raise capital, there are several unique points that need to be made clear to a prospective investor.
35. Tough Questions for Investors
In the process of raising funds to create and develop a business, entrepreneurs make many statements to those they seek to attract as investors. I’ve developed a set of tough questions that are sure to elicit both information and a vibrant dialog – questions not on the usual checklists of angel groups or investors.
36. Why Royalties are Better for Investors
Article in Angels Investor News: “…is it not more logical to buy a percentage of a company’s revenues than to buy a minority equity interest? The value of shares is dependent on both revenues and management’s ability to control costs while supporting sales and marketing. It is clearly better for the investor to own a piece of the revenues than the company.
The offering of a royalty in exchange for shares, conditioned upon a minimum acceptance level, could be interesting, as the only obligation of the royalty issuer is to pay an agreed percentage of revenues for an agreed period.
“What represents value in most companies is a growth of per-share earnings. Two problems; there has to be sustained and increasing profitability, and the company will have to have been able to grow without having issued more shares — which reduce the percentage ownership of the investor.”
39. How Royalties Are Paid; US Patent Notes
One of the key elements of the U.S. patent which I received in 2010* regarding royalties is the requirement that the royalty be paid to the investor simultaneously with the receipt of revenue by the royalty issuer.
40. Royalties in Developing Countries
It is probable that the first transactions in primitive, pre-money markets were based on barter, with a small animal, a tool, some food or a piece of stone traded for something else. Barter exchanged either the ownership or use of something for something else of similar value.
41. Why Royalty Investing is Better
A simple, point-by-point exposition on why royalties investments may be better for the serious long-term investor, compared to equities.
42. The Natural Enemies of Royalty Financing
An imagined dialogue between a professional private company “Shark” investor in an off-the-record discussion with a curious “Journalist.”
Shark: I sure hope this royalty-financing thing doesn’t catch on, because we have had it so easy up to now.
43. Using Royalties to Rescue a Failed Equity Offering
A discussion of how a revenue royalties offering to investors may be used to resolve an equity offering that could not close because of valuation or other issues.
44. Financing Pre-Revenue Projects
An examination of the problems of raising capital for startup businesses, and how a royalties finance approach may be better than equity, for both investors and management.
45. Royalties and Impact Funds
“Increasingly I am being approached to assist those interested in forming Impact funds. They are seeking insights as to the use of royalties and the structure and management of the funds. Investing in companies, or ‘Do well by doing good,’ is and has been a noble objective, one in which I am pleased to assist.”
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46. Chinese Investors and Others Considering Stock in U.S. Private Companies
Important considerations for any investor, before considering purchasing equity from privately-held companies. Royalties could be a better course.
47. Helping Churches to Assist Local Businesses with Royalties
“Would you believe that once upon a time there was a wealthy member of a church who wanted to help with more than just a single donation? The wise benefactor was addressing the issue of “easier versus better.” If the benefactor just wrote a check for a one-time donation that was easier, but if a process of helping local businesses expand, while assisting the church to a growing degree, over a longer period, could be developed — that would be better.”
48. Expectations for Return Multiples
Differences in timing of investment returns have a strong effect on IRR. Royalties pay returns quarterly over the life of the investment, whereas many other types of investment pay returns only at the end of the period.
49. Financing University Research Projects with Royalties
Suggestions for standards, principles and procedures that could make sense for a university seeking to monetize the value of its intellectual property through royalties.
50. Understanding Royalty Issuer Assured Return
Introduction of a tool to help investors understand the total returns that may be realized by a royalty investment.
Key questions such as,”How much information about the operations of a royalty issuer should be made available to the royalty owner?”, “Is it possible for a royalty issuing company to subsequently offer securities or do other financings?”, and “Are there minimum characteristics for royalty issuing companies as to projected profit margins and revenue growth projections?” are addressed by an advocate and a skeptic, in a courtroom style dialogue.
A guide to key questions investors must pose, when considering investing in the equity of a privately-owned company. Key is the method of valuation, both now and at a future proposed time of sale. Explanations of why royalties financing can make the decision process about this type of investment more straightforward.
“As the ever logical and mostly successful Mark Cuban says: he is always seeking a hedge to protect his assets. This is a reasonable approach as relating to assets, which have only a point-to-point objective of acquiring at a price today, with the hope of selling at a higher price in the future.”
54. Social Benefits of Royalties Transactions
The relative merits, in terms of social benefit, of an investment using royalties as the method of investor return, vs. an investment that uses equity as the method of investor return.
55. Constructing a Local Portfolio of Royalties
“First there is the matter of finding businesses which both seek capital and have a realistic prospect of increasing revenues, if the capital is acquired. The investor can make it known locally, perhaps through an attorney or other agent, that funds are available for the purchase of royalties with the following possible characteristics…”
56. Possible No Cash Invested, Bank Loan Guaranteed, Royalty Income Fund
Description of a possible method for using securities to collateralize a bank loan; the proceeds would be used to acquire royalties earning high current income. The royalties income would be used to make payments on the loan, and when the loan is retired, those who collateralized the original loan would own a valuable portfolio of income-producing royalties.
57. Innovation in Royalty Income Funds
“…the introduction of any new idea is difficult, as a record of success is sought to reduce the fiduciary’s career and the individual’s investment risk of doing something which has not been done previously. Of course, the conundrum is that if it has not been done before there cannot be a record of success or failure.”
58. Raising More Capital Than Required
Indications of why a company may consider raising more capital through a royalty than originally required, and how such additional capital requirements might be structured.
59. Financing Companies In Low Interest Rate Periods
“A company can acquire a range of assets and services, including credit, credit substitution and capital, using a percentage of its revenues for an agreed period — a royalty.”
60. Investment Risk: Royalties vs. Equities
An evaluation of how professional investors assess risk, and a point-by-point comparison of the risks associated with investing in equities, compared with the risks associated with royalties.
61. How Easy is it to Buy a Royalty
“Buying a royalty from a company is easy. Doing it correctly requires a a bit more experience and effort.” This article goes systematically through the key steps that both an issuer and an investor should take in the process of negotiating a sound and fair private royalty finance agreement.
62. The Advantages of Selling a Royalty Despite Additional Costs
An evalution of the disadvantages of equity and debt for both issuer and investor — and a comparison of the relative advantages of royalties. These relative advantages may justify using royalties to raise the needed capital for business expansion.
63. Comparing Royalties to Other Investment Classes
An evaluation of common asset classes — debt, convertible debt, preferred stock, common stock, master limited partnerships, REITs and annuities — compared to one of the newest asset classes, revenue royalties.
64. Can a Business Owner who Sells Discounted Equity Be Trusted?
Can the revenue projections of a business owner be trusted, if he is willing to sell equity in his business at a discounted valuation? If there is high confidence that the funds sought will generate the projected returns — and if a royalty alternative is available that does not dilute equity, investors must be cautious.
65. Royalties Provide increasing Payments as Revenues Increase
Business owners have traditionally only two courses of action to get the additional capital. The first is to borrow money, and that is difficult without providing the owner’s personal guarantees. The second way is to sell shares in the company representing partial business ownership, reducing the percentage ownership level of the business owner.
“Many of us have a passion to help specific non-profit organizations. These organizations can be health, education, veterans, music, art, environmental and community-related. The common denominator is a likely need for increasing amounts of support, as the need for the services provided increases, in both operational cost and the need and number of beneficiaries.”
67. Development Potential from Donor Contributions
For those having the responsibility of raising capital for non-profit institutions the creation of a royalty income fund or collaboration with those wishing to manage such a fund for the benefit of both investors and the institution is explored.
A description of several key functions required to effectively and accurately administer a royalty investment.
69. Revenue Royalty Obligation Funds
“Communities such as cities, counties and states may be able to issue Revenue Royalty Obligation Funds (RROF), similar to revenue bonds, and secured only by defined revenues as being payable to the entity offering the bonds. “
70. Benefits of Royalty Investing: Interview
A radio interview with Arthur Lipper III, hosted by Greg Writer. Arthur discusses the benefits of royalty investing, assisted by Rob Kramarz of Intelliversity. Originally appeared online in Angel Investors News.
71. Changing the Terms of a Royalty
A detailed description and tutorial in the use of the Comparator royalties calculator, to compare the terms of two proposed royalties and make appropriate decisions. Uses the REX-Comparator website.
72. Larry & Barry Using Scaled Royalties
Larry & Barry, the iconoclastic pair of business managers, consider how scaling royalty rates up or down, based on revenue performance, can benefit investors and entrepreneurs, and introduce the Scaled Royalties analytical tool.
73. Larry & Barry Consider Debt Share Royalties
The possibility of creatively combining debt with royalty returns is considered by Larry & Barry. The dialog reveals when this type of approach may be of benefit in structuring a royalties agreement.
74. Larry & Barry Discuss the Folly of Belief
“…people, including us, need to have a belief that good actions on our part in terms of benefit to others will ultimately produce a good result for us.”
75. Royalties for Sophisticated Business Owners
With the appropriate advice of counsel, royalties can be used to accomplish a range of business owners’ objectives: transferring profit, negative covenants, acquisition, divestiture, and more.
76. Using Royalties In Acquisitions
Royalties can be used as the basis for a royalty/equity exchange or swap.
77. Larry & Barry Discuss Pricing of a Royalty Sale
“The website calculator REX-PV.com gives us the answer — how close we would be to achieving the Internal Rate of Return (IRR) we targeted, and how much we should sell the royalty for.”
78. Terms Business Owners Want in a Royalty
A discussion of key terms that a successful business owner should consider, when negotiating a royalty financing, including cost of capital, termination and redemption.
79. Profitability of Managing a Royalties Fund
A consideration of the key factors that affect the profitability of a royalties fund, from the perspective of the fund manager.
80. What Can Go Wrong for a Royalty Issuer?
Three events that may take place, to the potential future disadvantage of a royalty issuing company.
81. Are Royalties Best For You As An Investor?
A checklist of questions that a royalty investor should ask, before making an investment in securities involving revenue royalties.
82. Investor Trust in Royalty Investing
“In securities and commodity transactions the exchanges are effectively substituted as the party responsible for the completing of the transaction. The investor does not know or care about the identity of the securities broker or firm which is either agreeing to take or deliver the asset traded. The investor simply trusts the firm through which he is trading to complete the transaction.
Revenue royalties for private companies are different…”
83. Business Owners: Is Royalty Based Financing Best for You?
Important questions for a business owner to consider, in analyzing their suitability for a revenue royalties investment.
84. Prospective Royalty Issuer Information
Details of the information required in order to begin consideration of whether a royalty financing is appropriate. For potential issuers, those seeking funding through a royalties contract, with contact information for Arthur Lipper.
85. Larry & Barry Consider Assured Return Royalties
Larry and Barry discuss the new analytical tool, at http://www.rex-riar.com. “With this tool, we can negotiate with the company the amount to be invested, the level of return, the minimum assured amount, the royalty rates and their timing and the redemption right. The success of any investment in royalties depends on the royalty issuer achieving the levels of projected revenues.”
86. Royalty Writings and Calculators
Comprehensive resources about revenue royalties are available at Royalties.Website, and in the library of PacificRoyalties.com and ChinaRoyalties.com. A number of calculators allow prospective issuers and investors to perform sophisticated modelling of potential royalties transactions; those tools are described and linked here.
87. Arthur’s Ancient Arabic Sayings
Statements about business and royalties, in English and Arabic, consistent with Islamic practice in banking and finance.
88. Video: Tools for Royalties Analysis. A talk by Arthur Lipper
Arthur Lipper provdes an in-depth discussion and tutorial about revenue royalties, a new investment asset class. He describes the analysis tools that he and colleagues have developed, to model and analyze royalties transactions, as showcased elsewhere on this website. The program was presented to The Alternative Board, a membership organization of private company business owners in Northern New Jersey, in May 2016.
89. Creating a Royalty Income Fund by Acquiring Control of Assets
An innovative method of creating capital for a revenue royalties fund is described.
90. Comparing Rates of Return with Royalties
“Comparing the rates of return from a royalty that pays quarterly income based on a percentage of the royalty issuing company’s revenues to that of a standard equity investment requires study, and an understanding of the differences.”
91. Disease-Specific Pre-Revenue Royalties
Suggestions for how to organize a royalties investment for companies that have potentially significant medical treatment technologies, but do not yet have revenues.
An analysis of the key reasons for failure of startup businesses (lack of cash is a symptom, not a cause). The need for a plan in advance to terminate a business honorably, to minimize social and economic damage; a systematic answer to the question “What Can Go Wrong?” beyond garden-variety risk analysis. Some remedies are explored.
93. Influencing Management Using Contingent Preferred Stock
“The royalty investor in an early stage company is pleased when the company generates the revenues projected at the time of investment. However, when the projected revenues fail to be achieved, during an agreed period, the investor wants to have greater control of the royalty issuing company than is the case with a traditional royalty.
94. Special Focus Royalty Income Fund
The terms needed to create a Special Focus Royalty Income Fund (SFRIF) are detailed. In some cases, a particular industry or geography may have potential for royalty returns that justifies establishing a multi-company Fund with a tight focus.
95. Assuring Royalty Issuer Compliance
Two patented techniques are described, which help to assure compliance by a company issuing royalties: a revenue “lockbox” and an intellectual property assignment. These techniques provide assurance to investors that they will receive a share of revenues as intended, and may allow for lower risk, and therefore lower royalty rates.
96. Using Royalties to Rescue an Equity Offering
How a royalties offering may be use to close the gap between the equity valuation assumed by investors, and that assumed by a company seeking financing.
97. Royalties for Angel Investors
The how and why of angel investing, the tuning and balancing of risk and reward in a portfolio of startups. How a royalties strategy can mitigate risk and enhance overall returns.
98. Royalty “Put” or Guarantee Fund
A method of assuring investor return on a revenue royalty investment, using a “put” to provide a guarantee of performance, is described.
A proposal to establish a new professional certification program, authorizing the practice of a “CRA” — a certified royalties advisor. Basic curriculum and qualifications outlined.
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100. Annual REX- Royalty Competition
A proposal for an annual gathering of royalties advisors and professionals, to consider awards for professional excellence, and to exchange knowledge about critical methods for expanding the use of revenue royalties as an alternative method of financing.
101. Strategy Considerations and Tools
A thorough explanation at the various analytical tools available to understand and fairly negotiate sound revenue royalties contracts.
102. Considerations for the Royalty Seller
More than 20 key questions to be considered by the management of any company seeking to sell revenue royalties in order to raise investment capital. Advantages and disadvantages; advice and caution.
103. Questions for Inventors Seeking Royalty Funding
The inventor of a new product or service has some unique questions to address, before seeking funding using the revenue royalties method.
104. Are Royalties Best for Your Company?
Arthur Lipper writes: “I am now offering to professionally advise business owners on the appropriateness of royalties for their use.”
105. Documentation of a Royalty Transaction
Typical agreements, rates, terms, limitations and special conditions of a revenue royalty finance transaction.
Reason #1: Royalties increase the taxable income of investors once there is a recapture of principal. If the royalty issuing company is successful, the royalty issuer is required to make increasing royalty payments.
107. Companies to Buy Royalties, Pro and Con
“Successful investing in the revenue sharing royalties sold by privately owned companies requires correctly assessing the royalty issuing company’s future revenues. Increasingly investors are also concerned with the social and business values of the company issuing royalties.”
108. Atychiphobia and Achievemephobia
Not specific to royalty investment — here are some useful thoughts from Arthur Lipper on the practical, social and psychological aspects of the “fear of failure” and its converse, “fear of success.” For anyone involved with high business achievement.
109. Applying the Skills of a Lender to Royalties
Some of the skills needed to assess business lending are useful in royalty finance as well. This article examines those skills, and also considers issues in using royalties to provide finance for non-profit and for-benefit enterprises.
110. Using Royalties to Finance For-Benefit Companies
A critical look at the different standards used for investment in standard businesses, relative to for-benefit businesses, and how the use of royalties to provide capital applies.
111. Larry & Barry Consider Starting a Royalty Income Fund
With their success in financing their own company, the dynamic duo considers establishing a private investment fund, to finance other independent companies in a diversified portfolio. They look at the steps, the work, the rewards.
112. The Needs of Royalty Investors in Pre-Revenue Companies
“Investors in technology-focused, high potential, high risk, early stage companies are a different breed from investors simply buying royalties to benefit from the royalty issuing company’s growth of revenues.”
113. Larry & Barry Discuss the Cost of Royalty Funding
Business owners who consider accepting an investment structured as revenue royalties need to understand their total cost of capital, relative to other alternatives including traditional debt and equity. Larry & Barry take the viewpoint of business owners in this lively discussion.
114. Negotiating Terms Wanted by Investors
“…focusing on the investor’s return is logical, as the calculation and declaration of profitability in privately owned, non-audited companies is dependent on decisions made by the founders and managers of the business. These areas of founder discretion include; executive compensation, employee benefits, product pricing, marketing and sales expense budgets and the terms of trade in making the sales.”
115. Fairly Supporting and Profiting from Early Stage Investment
“Government and other investors who intend to assist early stage companies which will have a positive impact on society , if the projects are successful, have a problem.’
116. FAQ: Frequently Asked Questions about Royalty Assurance
Issues examined include the degree of assurance provided, the use of the RIAR calculator, transfer of the assurance.
117. Larry and Barry Learn from Losing
Investors Larry and Barry lost all their money in a deal. They go through the painful but necessary learning process.
118. Securing Contractual Compliance through Asset Transfer or Assignment
The mechanics of securing a royalty contract are examined; the patented process provides for transfer or assignment of critical company assets.
119. Protecting Royalty Investors
Straightforward procedures for securing the interests of royalty investors are discussed. Since neither debt nor equity is considered, the options are somewhat different with a revenue share security.
120. Larry and Barry, Investing in a Royalty Income Fund
Larry and Barry, with their investor hats on, discuss the possible advantages on investing in a fund of royalty-issuing companies. Then they put their company hats on, and evaluate the opportunity from that angle as well.
121. Royalties for Indian Tribes
A basic plan for investment in royalties by Indian tribes in the San Diego area is proposed by Mr. Lipper; he resides in the area, and has sound relationships with the business community there.
122. Arthur’s Royalties Wish List
Arthur Lipper has spent several years actively cultivating the potential of royalties as a new alternative private corporate finance. Here, he shares his personal wish-list, that would furhter cause.
123. Larry and Barry Use Royalties to Fund an Acquisition
The dynamic duo return to their inventive ways — this time figuring out how to finance an acquisition of another company by their own company, using a royalties strategy.
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124. Due Diligence for Royalty Investors
Investigating the prospects of a royalties investment before making a financial commitment can be much simpler than what is required for an equity investment. There are, however, some important questions, and this article provides guidelines.
125. Royalties Fees and Commissions
“As royalties are such a socially positive development, there should be a process through which individuals, with appropriate background checks,can be licensed specifically for the purpose of advising investors as to the merits of royalties, and receive payment for these services.”
126. Helping Publicly Traded Zombie Companies with Royalties
Many small companies are public traded, but their business is no longer functioning, and they are a burden to their owners. A new business could take over, offering a royalty on revenues to the owners from a revived enterprise.
127. Larry and Barry Wondering about Royalties
The dynamic investor duo talks about why, with all their evident advantages, royalties are not already the preferred way to finance a growing company.
128. Larry and Barry Discuss a Bad Idea
A key premise of a royalty investment is that it does not involve a transfer of equity. Larry and Barry examine a possible exception to this, and consider the pro’s and con’s.
129. Using Royalties To Acquire Financial Assets
Royalties can be used to finance the acquisition of a variety of financial assets. The most common is a percentage of the future revenues of a company, but royalties can also be used to acquire a professional practice, equipment, a franchise, even executive services.
130. Larry & Barry Discuss How to Deal with Scaled Royalties Shortfalls
Intrepid royalties investors Larry & Barry are discussing the “Scaled Royalties” technique. This method, for which a dynamic model has been developed at REXScaledRoyalties.com, allows companies to receive benefits if they consistently exceed projected revenues, and provides for investors to receive adjustments in their returns if companies consistently miss projected revenues. The latter situation is the subject of this discussion.
131. 15 Questions Investors Have about Revenue Royalties
Why buy a royalty? What are the risks and likely returns? How do I choose the right royalty issuer? How does an investor receive royalty payments? How do I sell a royalty I own? These and many other vital questions are answered in this thumbnail document. The issues are explored in depth elsewhere in this Library.
132. Larry and Barry On the Bad Choices of Early Stage Investors
The start of a dialog between business partners, acting as investors, Larry and Barry:
Larry: “I was just at one of those meetings for people supposedly interested in investing in early stage companies.” Barry: “How was it?” Larry: “Terrible; they were thinking just the way we were before we learned about royalties.”
133. Should a Royalty Investor Use Leverage to Increase Investment Returns?
Guidelines to the use of financial leverage — borrowing against an existing royalty asset and re-investing the funds in the same asset — are explored.
134. Investment Manager Questions About Royalty Fund
Some initial questions that should be considered by the prospective manager of a private revenue royalties investment fund. Key risk factors, legal form of organization, and fee structure are among the issues addressed.
135. Using Multiples of Cost to Measure Royalty Returns
“In projecting the possible result of investing in the stock of a company, many equity investors use a shorthand measure: the number of times the amount invested is anticipated to increase. This description is not useful without the period the investment is to be held, as the true measure of performance is the Internal Rate of Return (IRR), which indicates amount of profit for the given period of investment.”
The financial performance of royalties is measured quite differently, and this article details how.
136. Crediting Royalty Payments for Redemption Calculation
For a number of reasons, it may be desirable for the issuer or the investor to terminate royalty payments early, before their full agreed term. Therefore, many royalty contracts include a redemption right. This article spells out how royalty payments made up to the date of redemption should be credited against the redemption right payment.
137. New Royalties Patent — Press Release
Arthur Lipper announced the filing of a U.S. patent application for a new contractual and structural approach to revenue royalties. These new approaches will be of interest to private companies, government organizations, university research groups and other revenue-generating entities that are able to make long-term minimum revenue projections and remit royalty payments in exchange for non-dilutive, non-debt capital.
138. Exclusively for Those Starting a New Business
If, down deep, you question the ultimate success of your new business, then by all means sell ownership interests in the company in exchange for the necessary capital. However, if you are confident the business will succeed and wish to continue both managing and owning it, then an alternative to selling equity should be considered.
139. Creating a Range of Royalty Income Funds
For potential managers of royalty income funds: some basic considerations. Some examples: There is a need for both diversification and focus funds. Fund managers will develop selection criteria based on reasonable anticipated future revenues, not on valuation or per-share earnings. Possible future redemption rights need to be addressed in the initial agreement documents.
140. Arthur Lipper Publishes a New Textbook on Revenue Royalties
“Revenue Royalties,” a major compendium of relevant writings regarding the use of royalties, by Arthur Lipper has just been published as a Kindle exclusive by Amazon.com.
Arthur Lipper is a well-known international investment banker, author, lecturer and inventor. The 150,000-word Revenue Royalties is segregated into sections for investors, business owners, royalty fund managers and of general interest to the investment community. The writings are mostly brief and focused directly on the needs of the targeted reader.
141. Freqency of Reports for Public vs Royalty Companies
Publicly-traded companies may soon be required to file dinancial statements only every six months, if proposed regulations go into effect. This article points out that reports from private companies that use revenue royalties as their financial mechanism would actually be more frequent that this. The benefits are described.
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142. Why I Would Buy Royalties
“As an investor, I would buy royalty contracts because I want a simple way of profiting from the growth of revenues achieved by companies I believe have products or service of recognized value to their customers.
As a business owner, I would agree for my company to sell a royalty if I believed that my company would increase its revenues and value if additional capital could be obtained.”
143. What I Don’t Want When Raising Capital
A series of common objections that business owners have, when raising capital. For example, “I don’t want to be taken advantage of by those who have the ability to finance my company’s growth.” And”I don’t want to sell shares of the company now, because I know they will be worth much more in the future.” This article provides answers to these objections, and shows how revenue royalties addresses them.
144. Fake News about Revenue Royalties, Part 1
Opinions you will never hear in the real business world — about what businss owners believe. Part 1 of 2. “Business owners feel honored if an investor requires the right to appoint one or more members to an active Board of Directors.”
145. Fake News about Revenue-Royalties, Part 2
You’ll never hear this, anywhere but here: “In attending a convention of investment managers, it was learned that an increasing number of important and established money managers are willing to use non-traditional stock and bond investment for their income-focused accounts.”
146. Beliefs and Truths About Using Royalties
“Royalties are one of the oldest means of trade, originating in pre-Biblical times. Barter is the only means of trade which might have been an earlier means of exchanging one thing for another, with valuations determined by the parties to the trade. Royalties, which are simply a revenue sharing in whereby one party receives a share of the revenues generated by another party. Royalties are unrelated to the profit or loss generated by the party using the asset owned by the other.”
147. Creating a Revenue Royalties Income Fund
“Creating a revenue royalties income fund (RRIF) can be a rewarding, satisfying and highly profitable venture. The RRIF provides investors with a means of achieving higher income with less risk, business owners with non-equity dilutive growth capital and enterprise profit.”
148. A Royalties Income Account for a Single Investor
“…the process of creating a portfolio of royalties issued by companies with increasing revenues results in a capital pool having a high and increasing return, with a minimal, if any, capital risk. The royalty issuing company has a fairly priced, issuer terminable, revenue sharing and non-equity dilutive, source of expansion capital.”
149. BlackRock Executive Letter — Arthur Lipper Responds
“Since the inception of our effort to educate both investors and business owners, I have felt it necessary to gloss over the significant societal benefit of revenue royalties, fearing our effort would be cast into the “do gooders” basket in the minds of the sophisticated investors to whom we were telling our story.”
150. Investment Management and Revenue Growth
“The growth of revenues is, in part, the measure of a company’s marketing success in providing present and potential customers with positive value.
“Profits are the measure of company management’s ability to increase revenues in excess of costs. If revenues continue to grow, profits will either grow, at least proportionately, or steps will be taken to correct the situation. From the investor’s perspective, it’s all about revenue growth and ideally all portfolio holdings should be, at least, at the level of reasonable expectation.”
151. Royalties for Company Business Owners
The capital for business expansion can come from retained earnings or from external sources. Traditionally, capital is raised by selling a percentage or the company’s ownership, as debt is unlikely to be available to companies initially, or possible only on unattractive terms…Reduced ownership by founders and controlling shareholders, resulting from equity dilution, is unnecessary and too high a price to pay for success.”
152. Virtually Riskless Royalties
“In the case of royalties, an agreed percentage of a company’s revenues, the only risk is the royalty issuer’s possible failure to meet the agreed terms of the royalty and to make the contractually required payments. When the royalty payments have totaled the amount paid for the royalty there is zero capital risk and all future royalty payments are profit.”
153. Sovereign Secured Revenue Royalties
“Sovereign nations typically possess important assets to which private entities do not have access — among these are control over natural resources, waterways, land rights, air rights, magnetic and digital spectrum, ocean navigation, ports, telecommunications, mineral and underground rights. These sovereign assets may be efficiently monetized for the benefit of a nation, its people and companies, using an appropriately structured Sovereign Secured Revenue Royalty.”
154. Community-Organized RIF (Royalty Income Fund)
“Certain types of investors may find a portfolio of revenue royalties issued by companies with operations in a specific city or state to be an attractive investment. Provided the companies are seeking capital and are qualified, an investment in a structured share of their revenues could meet the needs of certain investors.”
155. A Case Study: Alternative Terms for Royalties Finance
Three possible scenarios for royalties financing are proposed and analyzed, using the tools in the Royalties Analytics System. Exco 1 is the most basic, simple revenue royalties structure, with a direct share of revenues paid to investors every 90 days. Exco 2 uses the same underlying assumptions, but with a short-term debt that converts to royalties after a given benchmark is achieved. Exco 3 adds an assured minimum return to investors, and retains royalties received as a credit for investors, reinvesting them through the term at a given interest rate.
An inventory of the advantages of choosing revenue royalties as a means of assuring a reasonable return for investors, compared to the more traditional equity method.
157. In Economically-Stressed Times…
Arthur Lipper offers an assessment of risk-balanced portfolios, in times when the valuations and stock prices of publily-traded equities are under macroeconomic stress. The balanced presence of select private company revenue royalties interests is recommended, to diversify against risk.
158. Venture Debt Versus Revenue Royalties
Early-stage companies are increasingly being solicited by aggressive lenders and enticed to borrow with payment terms including a multiple of the principal, based on a percentage of revenues received during an agreed period. I have heard that one of the deals being offered calls for the repayment of 200% of the principal by the end of 24 months and an even higher percentage if the repayment takes longer…These multiple-of-cost-based loans can become truly burdensome for the borrowers if the events counted upon to justify the high cost of money do not materialize as expected.
159. Ways to Benefit from Royalties
The business owner obtains non-equity dilutive capital with which to grow his or her business.
The investor enjoys the benefit of getting higher levels of income with less risk than is usually associated with such levels of return.
The guarantor is the compensated risk acceptor and must await the payment of royalties by the issuer to the investor to know if the guarantee fee received was an assurance premium or an offsetting reduction in payment on a royalty issued by a company in the future, that has disappointed both the issuer and the investor.
160. An Equity-for-Royalty Swap
How could a company, without using funds to bid for outstanding shares, accomplish the objective of concentrating ownership? The answer is to offer to the owners of a minimum number of shares a revenue royalty exchange for their shares.
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