|Royalty Financing Calculator samples of transactions|
|having different circumstances and terms|
|Samples may be accessed by either clicking on the project names below or by logging in by entering the name of the sample as both the user name and the password. From the Data Entry page click the "View Saved Data" button for the sample's data. Then the Analytics and Chart pages can be viewed|
SloGro is a case where a company had an opportunity to acquire something for $2.5
million, which would, in the following year, add $2.0 million to revenues. The royalty
deal negotiated was one of there being 10% of revenues required to be paid until
$5.0 million in royalty payments had been made, with the royalty then declining
to 5% for the remainder of the royalty payment period. As will be noted in the case
of SloGro, it is projected to require 8 years for the royalty holder to double the
$2.5 million and then the payment is 5% for the remaining 11 years. SloGro will
agree to repurchase the royalty for $25.0 million, including the royalty payments
made, at the end of the 20 year period indicating more than a 12% IRR.
Were SloGro to assure an investor they would receive 4 times the amount invested in cumulative royalty payments in 10 years and then continue to receive a royalty of 1% as is shown in REX-RIAR both the company and the investor would have better deals. The 10 year cumulative royalty payments would be 42% higher, but the 20 year cumulative royalty payments would be $6.3 million less, a saving of about 33% for the entire 20 year period.. The 10 year assured IRR is 27.9 %versus the projected 21.3%. so the investor is benefited by the assurance in the first 10 years and the royalty issuer by the lessened royalty rate in the second 20 year period.
PreRev owners need $2.0 million to create a proof of concept working model for a
device which extends the range of cellular phone base stations and are prepared
to exchange 10% of the PreRev revenues t tor the $2.0 million until $5.0 million
in royalty payments have been made and then to pay 5% of the Company's revenues
for the balance of the 20 year period. The royalty will be convertible into 10%
of PreRev's equity in exchange for the cancellation of the royalty, if exercised
within 30 days of the Company providing an audited annual report confirming the
achievement of an agreed minimum level of NAT. The convertibility is a right and
is not required.
The Pre-Rev deal is more likely to appeal to an investor if the amount was dropped to $1.5 million and the royalty rate increased to 12% until the 5th year when a minimum of $3.0 million in royalty payments would be assured. The royalty rate would then drop to 5% for 5 years and then 2% for the remaining 10 years. The growth of projected revenues is too modest to justify the $2.5 million sought and the purchase should be contingent on the additional capital being raised. The 20 year IRR is 38% and the company will have paid out $8.6 million less than that planned on a $3.5 million royalty sale.
BINGO is a nutraceuticals company working on a natural substance-based salve, which
will cure Acne and other dermatological conditions. The Company needs $5.0 million
for clinical trials and marketing. The scientist owner is so convinced that he has
developed a substance, which will meet user needs that he does not want to sell
any equity at this time. He is however, prepared to offer the $5.0 million royalty
purchaser 10% of BINGO's revenues until a minimum of $50.0 million has been paid
and then to either allow the royalty to continue until maturity or to be exchanged
for 12% of the Company's equity, if the Company is sold or goes public.
Both the investor and the royalty issuer could benefit if there was to be an assured level of royalty payments in the first 5 years of the $5.0 million cost of the royalty, instead of the $4.0 million projected, with the royalty rate remaining at 10% until the 11th year when it declined to 5%. The 10 year return would be 243% of cost and the 20 year return 738% of cost, with no investment risk past the 5th year. The royalty issuer will pay $25.0 million less in royalty payments using an assured approach than in the original plan.
|New is a company which has projected revenues which, if achieved provide the investors with a great return and produce a Business Value multiple increase in 20 years of almost 10 times. However, the amount of royalties paid in the first 10 years did not reach the Assured level agreed by the royalty issuer of 3X the cost of the royalty and is $1,682,607 deficient. As shown in the Analytics table the amount paid is 2.7 times the investment but only 88.8% of the required payment amount. Depending on the terms negotiated there can be an immediate cash payment of the deficient amount, the issuance of a 24-month note or whatever other action is required by the royalty agreement. As in all contract negotiations, it is the terms relating to a possible default which are all important. The Analytics table provides a clear picture of the issuer’s anticipated results and is therefore an important negotiation and understanding tool.|