The Royalty Model
August 9th, 2010 | 
Author: Is it time to expand the concept of structured angel investing beyond me too pre-VC equity investing in sub $2.0 million pre-money high impact opportunities? Should we instead think of any and all ways for high net worth individuals to use their resources and talents to grow concepts, products, and services whether they fit the 30-1 risk adjusted return profile?
Shouldn’t we support angels to maximize each part of their portfolio needs – current cash flow, liquidity, illiquid private equity, and high yield debt – even within their early stage pre-profitable segment? Since most made their fortune in the small business or professional practice fields, knowing from personal experience the need for cash flow each rugged step of the way toward success, they can judge the practicality and benefit –cost of leasing deals, growth equity deals, receivables financing, and on.
Thus, it behooves us to give best practices and techniques and tools for financial investments along the entire early stage continuum. Therefore, New Vantage is exploring current techniques to tried and true investment approaches - including royalty based vehicles for growing companies instead of layer upon layer of dilutive equity into companies that they know well because of prior relationship or sitting on the board of directors. The availability of better cash flow revenue sharing instruments seems to be meaningful for a portfolio company in growth mode and we will continue research and design of this instrument in the coming weeks and months. We welcome feedback and advice from others on the pros, and cons and context for use of this appropriate tool for high growth companies. These tough economic times demand revisiting all tools in our arsenal for equipping companies to stay afloat and survive today’s economic headwinds and this may well be a technique for structured angels and active angels to try. Stay tuned.
Posted in