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| The History and Vision for REX Royalties and the Use of REX-Basic.com |
Over many years of negotiating transactions, for both myself and as an investment banker representing clients, many of which related to the financing of companies, I reached the conclusion that an investor was much better advised to buy a piece of a growing company's revenue flow than becoming an owner of the business.
I also recognized that, in many cases, the owners of the businesses seeking funding were better advised to avoid the inevitable conflicts of interest between investors and founders.
This REX-Basic approach is the least complicated of the various approaches we have developed.
The user enters data re: the amount of money to be invested, the period of the investment and royalty entitlement, the Issuer’s Projected Revenues as estimated or based on a projected Compound Annual Growth Rate in various periods, the average for the period estimated Net After Tax (NAT) profit margin, the Price/Earnings Ratio (P/E) which is estimated to be appropriate if the company’s shares were publicly traded, the Market Cap (without consideration of debt) which would occur if the NAT was multiplied by the P/E and the royalty rate to be applied in different periods.
The calculator then displays: the projected revenues, the annual amount of royalties to be paid, the cumulative royalties which will have been paid, the current annual yield, the percentage of cost received in cumulative royalty payments, the Return On Revenues (ROR), the Internal Rate of Return (IRR) and the Market Cap.
In the analysis of the fairness and attraction of a royalty there is a balance between the anticipated cumulative amount of royalty payments to be received in an agreed period and the risk of loss accepted by the investors at the time of purchase of a royalty. The balance is reflected in the percentage of revenues or royalty rate to be paid by the royalty issuer. The investor’s perceived risk level determines the investor’s required royalty rate.
Royalties, no matter how structured and modified, must be fair to both issuers and investors. If the deal is not fair and reasonable as perceived by the issuer they will seek funding elsewhere. Similarly, if the investor does not believe the terms of the royalty deal are a good balance between risk and reward they will pass on the opportunity.
The great advantage for investors in buying royalties from companies having revenues is that total loss, so common in high return promising ventures, is highly unlikely as the agreed level of royalties are deducted from the amount received by the royalty issuer at the time of receipt. Therefore, for so long as there are revenues there will be royalty payments. The level or even total of cumulative royalties received can be disappointing, especially if the expectations were unrealistic, but there will have been a return on the investment.
Arthur Lipper, Chairman
British Far East Holdings Ltd. & REXRoyalties.com
artlipper@gmail.com
This REX-Basic approach is the least complicated of the various approaches we have developed.
The user enters data re: the amount of money to be invested, the period of the investment and royalty entitlement, the Issuer’s Projected Revenues as estimated or based on a projected Compound Annual Growth Rate in various periods, the average for the period estimated Net After Tax (NAT) profit margin, the Price/Earnings Ratio (P/E) which is estimated to be appropriate if the company’s shares were publicly traded, the Market Cap (without consideration of debt) which would occur if the NAT was multiplied by the P/E and the royalty rate to be applied in different periods.
The calculator then displays: the projected revenues, the annual amount of royalties to be paid, the cumulative royalties which will have been paid, the current annual yield, the percentage of cost received in cumulative royalty payments, the Return On Revenues (ROR), the Internal Rate of Return (IRR) and the Market Cap.
In the analysis of the fairness and attraction of a royalty there is a balance between the anticipated cumulative amount of royalty payments to be received in an agreed period and the risk of loss accepted by the investors at the time of purchase of a royalty. The balance is reflected in the percentage of revenues or royalty rate to be paid by the royalty issuer. The investor’s perceived risk level determines the investor’s required royalty rate.
Royalties, no matter how structured and modified, must be fair to both issuers and investors. If the deal is not fair and reasonable as perceived by the issuer they will seek funding elsewhere. Similarly, if the investor does not believe the terms of the royalty deal are a good balance between risk and reward they will pass on the opportunity.
The great advantage for investors in buying royalties from companies having revenues is that total loss, so common in high return promising ventures, is highly unlikely as the agreed level of royalties are deducted from the amount received by the royalty issuer at the time of receipt. Therefore, for so long as there are revenues there will be royalty payments. The level or even total of cumulative royalties received can be disappointing, especially if the expectations were unrealistic, but there will have been a return on the investment.
Arthur Lipper, Chairman
British Far East Holdings Ltd. & REXRoyalties.com
artlipper@gmail.com