Royalty No Dilution — Straight No Chaser

A lot of the writing about “royalty” investing is meant from the point of view of passive, public-markets investors (e.g. with oil & gas MLPs).  But when folks start looking for information about royalty with the qualifier “no dilution,” you can bet it’s in the context of a trade-off between royalty-based (or revenue-based) financing vs. equity (dilutive) financing.

So, what is it about royalty / revenue financing (RBF) that makes it non-dilutive to equity holders?

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Revenue-Based Funding by Corporations

There’s a difference between traditional venture capital and corporate venture capital.  While standard VCs are primarily concerned with financial goals (i.e. a high IRR%), corporate venture capital (CVC) groups such as Intel Capital, GE Capital, and the J&J Development Corp. have dual goals: financial and ‘strategic’ value.  CVC investments must somehow assist the core business of their parent companies in addition to creating financial returns. Read more of this post