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Arthur Lipper on Royalties: Century City, 2015


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A presentation made by Arthur Lipper to the Global Alternative Funding Forum, November 2015, in Century City, CA. Full details at

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Arthur Lipper on Royalties: Century City, 2015

  1. 1. Royalties are the better way of both investing in and financing privately-owned, early stage companies. Arthur Lipper, Global Alternative Funding Forum Century City, 2015
  2. 2. Buying equity in privately owned companies has not generally been a successful investment strategy. Business owners selling stock in the financing of privately owned companies, even or especially those which subsequently became successful, has resulted in many cases in business owner regret and frustration.
  3. 3. It is better for investors to seek, perhaps even on a leveraged basis, predictable results in the form of buying a percentage of a promising company’s revenues for an agreed period, than its subject to dilution and exit event justified equity.
  4. 4. To be attractive to investors: • The amount paid for a royalty should be received back in royalty payments at least by the end of the 5th year • Provide the investor with an Internal Rate of Return of at least 20% over the course of the royalty payment period.
  5. 5. Why negotiate valuation when revenue participation is better for both the investor and the business owner? The investor’s more logical decision is the attraction of the level of projected cumulative royalty payments versus the possibility the revenues will disappoint.
  6. 6. • Royalties can be secured or unsecured. • Can have minimums and can be assured. • Royalties can be paid whenever the company receives revenues. • The royalty rate can be adjusted based on royalty payment achieved results. • Royalties can be redeemable at the option of the company on pre-agreed terms. • Royalties are negotiable and can be transferred by the owners.
  7. 7. • Royalty owners do not have a vote and do not have an ability to influence management. • Royalty owners do not seek an exit and wish to retain their royalty for as long as possible, assuming the company’s revenues are increasing.
  8. 8. • The determination and negotiation of what’s fair and reasonable in a royalty is facilitated by using the website calculators: •
  9. 9. • Revenues are the measure of customer satisfaction. • Per share profits are the harder to predict measure of managerial skill, non-dilutive financing and handling of unexpected events. • So – why not invest in and finance your company using royalties, the better way? Thank you, and questions please.