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

4 Trends in Small Business Credit

Businesses with fewer than 500 employees account for 99.9% of US firms.  Overall there are over 6 million employer firms in the US (2006) with 600K new businesses forming every year.  Approximately 1.3 million businesses employ between ten and 1,000 employees, generating over $5 trillion in annual revenue.[i]

With profound community, national and international importance on the shoulders of small business, the following summary highlights 4 trends in US small business credit and lending. Read more of this post

Inflation or Deflation: RBF for an uncertain future?

Satirical country singers “Bretton Wood” and “Merle Hazard” have a real hit on their hands with “Inflation or Deflation:”

Their chorus, chilling in some ways if funny in others, is:

Inflation or deflation?
Tell me, if you can
Will we become Zimbabwe
Or will we be Japan?
Credit markets came undone
And still are in distress
Will the dollars in my mattress
Buy much more next year or less?

If you knew which of the two were just around the corner (and no consensus seems firm today), how might you invest?  Well, the usual answer looks like this:

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Revenue-Based Finance & The Cost of Capital

How much does revenue capital cost?  In other words, how expensive is revenue-based financing (RBF) as a source of venture funding compared to equity and traditional loans?

Rather than vaulting into financial engineering, Greek equations and Modigliani-Miller debates, consider the following first-hand account:[i] Read more of this post

Global Venture Capital and Revenue-Based Finance

The United States has a problem: entrepreneurs and venture capitalists are having trouble getting funded.  Less than 1% of startups attract equity-based venture capital in the US.  Making matters worse, the US venture capital industry posted negative 10-year returns as of 2010, with a 31% decline in first quarter dollars raised by VC firms (compared with the first quarter of 2009).  Times are hard.

What about other countries?  Does the US have it better?  Worse?  How do venture capital environments compare in BRIC nations, and how can revenue-based finance help?

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Introduction to Revenue Capital (Video)