For a Royalty Based Financing deal the investor buys a percentage of the company’s future revenue. This means that neither party relies and is driven towards an exit which might take many years of never take place. The Investor is paid a royalty of typically between 1% and 10% of the company’s revenues every month until the originally negotiated multiple of the original investment is reached. For example, the investors may receive a x1.5 to x5 repayment for their original investment.
This method of financing is not suitable for all companies but can align the interests of the company and investor much more effectively than other forms of finance.
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