Here is an interesting story over at XEconomy on Royalty-based venture financing. According to the story, royalty based financing is a technique previously used in mining or other royalty-rich industries, which is now being applied to technology firms:
The concept of royalty-based financing is simple. Instead of buying equity in a young company, an investor agrees to receive a percentage of the company’s monthly revenues–up to a limit of, say, three to five times his or her investment. Instead of waiting five or 10 years for a startup to go public or get acquired, an investor can start seeing returns almost immediately. This approach means investors should be able to fund a much wider range of startups than just those that typically receive venture backing–the ones that have potential to grow huge, fast. The downside is that your returns are capped, so if you do end up backing the next Google or Amazon, you still only get five times your investment back.
The story notes that this could be an alternative to VC funding for start-ups.
Royalty based financing is just one of a number of new alternative financing mechanisms that have developed over the past few years. Athena Alliance has been working on a new report on case studies on intangible asset financing. That report is due out shortly — so stay tuned.
Thanks to Technology Transfer Tactics for the heads up on this article.