An Interesting Alternative for Angel Investors: Royalty Based Financing

By Bryan Watson

It is widely known that angels have a strong focus on exit-dependent investment models.  But ever since the exit environment went under pressure in 2007, investors started looking at differing investment models – one being “royalty based financing”.

The idea: “Instead of buying equity, you buy a percentage of the company’s future revenues.  So, rather than having to rely on an exit, which could take years to (or might never) occur, you receive royalties (typically between 1% and 10% of the company’s revenues) from the company every month until a negotiated multiple (e.g. 3x to 5x) of your original investment has been returned to you.”  Refer to the following article for more details.

[Editor Comment: This article speaks to the flexibility of angel capital. One model does not fit all, which can be a boon to both investor and entrepreneur!]

Reposted from National Angel Capital Organization

Throughout his career, both in Canada and the UK, Bryan J. Watson has been a champion of entrepreneurship as a vector for the commercialization of advanced technologies. Upon his return to Canada in 2004, Bryan established his venture development consulting practice to help emerging-growth companies overcome the barriers to success they face in the Canadian commercialization ecosystem.  Visit Bryan’s blog and the National Angel Capital Organization.

The RIC blog is designed as a showcase for entrepreneurs and innovation. Our guest bloggers pro vide a wealth of information based on their personal experiences. Visit Altitude Accelerator for more information on how RIC can accelerate your ideas to market.

Recent Posts