Royalties or revenue participations are an old, tried and proven means of compensating those owning an asset desired by a company wanting to use that asset. The desired asset can be; money, intellectual property, physical property or some other right to use something.
Offering investors a small percentage of future revenues in exchange for their capital is a better way to finance many private companies and projects, than equity or debt for both investors and the Issuers selling the royalty.
For the royalty Issuer, revenue participation-based financing avoids debt, interest, equity dilution, outside directors and shareholders, and public company reporting requirements.
For the investor, revenue participation-based financing offers more predictable returns than equity, quarterly income, and a more effective means of investing in private companies.
Successful companies usually have growing revenues, but all companies face the possibility of unexpected events which can adversely impact profitability. The now U.S. patented “Fair and Shariah Fair Revenue Participation Contract” units enable investors to receive a percentage of the company’s revenues, regardless of the company’s profits or expenses.
Privately owned companies frequently need additional capital to accelerate growth and achieve long term objectives. The owners of these companies frequently do not wish to either increase or change the ownership of their company or, in some cases, to disclose the profitability of their company. The sale by the company of a negotiated percentage of revenues, for an agreed number of years, can be an attractive and appropriate alternative means of financing the future growth of the business.
Managers of publicly traded companies also can take advantage of revenue participation contracts to finance projects requiring additional capital without increasing debt or diluting earnings to equity ratio.
The ever present pressure on the management of equity investor financed private companies, anticipating to become public companies, to report ever-increasing earnings lead, in many cases, to short-sighted decision making and, sometimes, fraudulent behavior. Revenue participation based financing eliminates the pressure on managers to prioritize quarterly profit reporting over longer term considerations. |
