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    7 Replies Latest reply on Jan 26, 2010 3:33 PM by loan guy

    Do Angels understand Royalty Financing?

    awareness Newbie
      I am involved with a start-up company offering Royalty Returns ( fixed % of gross sales) for investors. The offering, even cutting out business plan estimates in half, would provide an annual return of 50% on investment with no cap, and our plan runs for a full 10 years. This type of investment offers a return from day one of sales and has been used for many years in the entertainment and mining industries. The typical VC approach is to gain growing equity share in the business and push for an exit plan in 3-5 years, realizing no return until exit. With the state of the economy and no IPO's on the horizon, I believe this will become an increasingly popular investment option between Angels and high profit margin start-up companies.
        • Re: Do Angels understand Royalty Financing?
          golfheaven Adventurer
          I hope you are right. I just saw a article i will share with you.

           

          Angel group investing this year appears to have fallen at least 10 percent below 2007 levels, but 2009 could show improvement, according to survey results the Angel Capital Association released Thursday.

           

          The survey provides a preliminary prediction of North America angel group investment levels before full data for 2008 investments is available. Although investment size has risen, angel groups have made fewer investments in startups, mostly due to economic concerns and market uncertainty, the association said in a release.

           

          The ACA, a national angel group trade association, collected the data in November from leaders of its 165-member angel groups, with about two-thirds participation.

           

          The survey indicated that the average group investment was $280,936 a deal, up 6 percent from the 2007 average. However, each group averaged 6.1 investments, about 16 percent fewer than in 2007. That would make the average total financing by each group about $1.72 million, down more than 10 percent from $1.94 million last year.

           

          Nearly half of survey participants had expected more investment activity in 2008.

           

          About 76 percent of respondents expect a greater number of investment requests next year, and about half said 2009 investment levels would rise or stay steady. However, more than a third said the number and dollar amount of investments would drop.

           

          "Clearly, the economy is having an impact on what angel groups will do to fund startups," ACA Chairman John Huston said in the release. "However, a majority of groups expect to see the same or more investment opportunities in 2009. Some of these groups might aggressively seek new deals as they see new advantages in lower company valuations but also in fields such as green technologies, health care, mobile media, recreation and renewable energy."
          • Re: Do Angels understand Royalty Financing?
            LUCKIEST Guide

            Do Angels understand Royalty Financing, Welcome

            Royalty Financing

            From Wikipedia, the free encyclopedi

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            Royalty financing is done by selling the rights to a percentage of revenue
            of a product or service in advance of the revenue being earned.
            Traditionally this type of finance has been common to investors in the mining and energey sectors. Recently it has become more common within techonology companies.
            1 of 1 people found this helpful
              • Re: Do Angels understand Royalty Financing?
                awareness Newbie
                Your right on with the Wikipedia definition, but I am finding it amazing how few Angels are aware of this type of financing for start-ups... Especially Angel Groups, which mostly just pattern themselves after VC's.... This type of financing would be a perfect fit for individual Angels looking to invest their money for unheard of high returns in the existing economic environment... In addition, my company offers the additional benefit of social responsibility, appealing to SRI's (see my website (www.awarenessaudiobooks.com).
              • Re: Do Angels understand Royalty Financing?
                NoBullFunding Scout
                I don't think its that Angels don't understand the model you are describing, they just prefer they equity model. If a business takes off, they want to experience the benefit of being an equity holder when the business is sold.

                If you like royalty returns because you see it as a way to keep more money in your pocket, then an investor will also understand that this deal is working in your favor. Investors are extremely selective, so they have the benefit of having negotiating leverage (ie either you agree to their terms or you get no investment). Remember that investors are taking huge risks, so they should be compensated as such.