Royalty Financing Calculator samples of transactions
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having different circumstances and terms
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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
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SloGro
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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.
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PreRev
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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..
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BINGO
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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.
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Oops!
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Oops is a highly promising medical diagnostic device company, which has grown sharply for the last 5 years. The owners do not want to sell equity, as they believe they will receive a bid to be acquired in the next 5 years, assuming the Company continues to grow and prosper, as they expect. Oops is prepared to offer a 20 year royalty for 5% of its revenues with a guarantee the purchaser will have a minimum of a 20% IRR for the royalty payment period (which would be 16.2 times the purchase price of $5.0 million or $81.0 million) and at least that much of an IRR in the event the Company is sold before the end of the royalty payment period. The game changes in the third year of the royalty payment period, as there is a change in government regulation or a competitor comes out with a better product. As a result Oops, the Company is forced into bankruptcy. The equity holders and most of the debt holders suffer significant losses. However, the Trustee for the royalty holders, owning the IP and other assets of Oops, may be able to negotiate a deal with those wishing to reorganize Oops into Oops II or be able to sell or license the Oops assets for the benefit of the royalty holders. Of course, royalty purchasers can lose money and receive a return of much less than they anticipated when purchasing the royalty.
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