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Royalty Financing Calculator samples of transactions
having different circumstances and terms
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
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.
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..
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.
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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Original development by Ian McDonough
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