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The History and Vision for REX Royalties
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 Royalties 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
Chairman@REXRoyalties.com

Royalties Analytical System



Calculator-logo 1. The Basic Modelrex-basic.com

This calculator allows users to enter their own data to view and understand the impact of royalty rates and other variables on a royalty transaction. The user enters the revenue projections believed to be realistic. This is the basic starting point in understanding how royalties can be used.
2. Comparing Two Models: rexcomparator.com
Comparator-logo
Users of this website are able to compare different royalty rates, royalty structures, maturities and amount to be paid for the royalty, all using the same projected revenues. It is most useful when deciding which of two royalty transactions would yield the best results for investors and business owners.

Debt-Share-logo3. Combination of Debt and Royalties: rexdebt-shareroyalties.com

This approach is frequently best for both investors and business owners of early stage companies with no revenues, or unproven revenues. A modest royalty commences upon the repayment of a loan, which bears interest below market rates, for an agreed number of years. The investor receives reasonable interest, and has no capital risk after the loan is repaid; the majority of his long-term return on investment comes from the royalty.
PV-logo4. Present Value Model: rex-pv.com

This model calculates the Internal Rate of Return (IRR) received each year by the holder of a royalty, and the amount a potential buyer of the royalty would need to pay the original investor to achieve a target IRR. It also calculates the royalties to be received by the new investor, the annual IRR and therefore the period necessary for the new investor to be capital risk free based on the price paid, assuming projected revenues are achieved.
Scaled-Royalties-logo25. Performance-based Scaled Royalties: rexscaledroyalties.com

Useful for negotiation of a transaction. If a company exceeds its revenue projections, it is rewarded; if it misses its revenue projections, investors are compensated. Users define the number of years in a Selected Adjustment Period (SAP) and the percentage variance from Projected Revenues which trigger a Plus or Minus condition. They may negotiate the resulting change in royalty rates and other elements of the transaction, were the trigger points to be reached. 
6. Royalty Issuer Assured Return: rex-riar.com
RIAR-logo-complete
This powerful online model allows both investors and companies considering issuing a revenue royalty to begin with the level of investment return required, and then determine how to assure that return with a pattern of royalties payments over time. The cost of the assurance of financial performance by the company affects the rate of return, and this can be easily and quickly analyzed with the RIAR model. An additional convenience is that data entered into this model is automatically also available with the original, straightforward model at rexroyalties.com.
© Copyright 2019 British Far East Holdings Ltd.
All rights reserved.
Functionality provided by IT Shastra (India) Pvt. Ltd.
Original development by Ian McDonough
Designed by: June Spring Multimedia
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