you're reading...

Small Business Finance – Royalty-Based Financing

I’ve written about Royalty-Based Financing aka revenue-based financing as a source for small business financing before. (Check out my blog at http://blog.smallbusinessgrowthcapital.com/2010/12/revenue-based-financing.html and http://blog.smallbusinessgrowthcapital.com/2010/12/revenue-based-financing-illustration.html). Here’s an example from CFO.com with companies that have actually used it. – Tiffany C. Wright

For Start-ups, Another Source of Cash

Royalty-based financing gives start-up companies a nondilutive, albeit expensive, source of funds.

Last year Velico Medical Systems, an aging Beverly, Massachusetts- based start-up with no products and no revenue, needed some money. The company had been “in perpetual funding mode,” CFO Tom Fitzgerald told a gathering on Tuesday hosted by The Capital Network, a Boston-area networking group. It had worked on products related to the handling and storage of human blood without any success. A new effort, which involved spray-drying human plasma, seemed promising, but prospects for a new source of equity capital were not as bright.

As it happens, Fitzgerald didn’t need the equity capital. Instead, he went back to a venture-capital firm that had previously turned down the small life-sciences company and emerged with a fresh infusion of cash through a nontraditional financing arrangement known as royalty-based financing.

In this arrangement, companies agree to pay a stream of income, or royalty, to the investor. The royalty can simply be a percentage of gross revenues or, as in Velico’s case, conventional royalty payments for intellectual property. Velico turned over the rights to royalties it received from a patent-licensing agreement it had with a large biosurgical-products company to the VC firm, OrbiMed Advisors. In exchange, Velico received a lump sum of money, free and clear of any future obligation. The deal closed last October, about eight months after the initial discussions about it.

Finish reading the CFO.com article.


About Tiffany C. Wright

Hi! I,Tiffany C. Wright, am the author of the ebook, "Help! I Need Money for My Business Now!!" and the book "Solving the Capital Equation: Financing Solutions for Small Businesses", available on Amazon. I am the president of Toca Family Business Services, a short-term & project-based interim management & strategic and financial advisory firm, located in Atlanta, Georgia. In the past five years I've helped small and medium companies restructure and obtain over $31 Million in financing and a similar amount in purchase orders and contracts. I have an MBA in Finance and Entrepreneurial Management from the Wharton School of Business at the University of Pennsylvania and a B.S. in Industrial and Systems Engineering from The Ohio State University. Personal: I enjoy investing. I am a prodigious reader of everything from business books, magazines, and newspapers to horror and popular fiction. I read 4-6 books per month. I also love to travel. I've been to 33 countries on 5 continents and lived in Japan for 2.5 years and aim for a foreign locale twice a year. I am also an athlete and run track on the Master's Circuit. The highlight was placing 7th in my age group in the 2007 World Master's Track and Field Championships in Italy.


No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

The Resourceful CEO, Tiffany C. Wright

the president of Toca Family Business Services, a strategic and financial advisory firm which provides short-term & project-based C-level management. She is the author of Solving the Financial Equation: Financing Solutions for Small Businesses, available on Amazon.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 2 other followers

%d bloggers like this: