Creating Risk Capital: A Royalty Fund Solution to the Ownership and Financing of Enterprise

Enterprises of all types struggle to obtain risk capital which would not lead to excessive debt or compromise effective management control. The need for risk capital to start or grow an enterprise is compelling but ironically the conditionalities typically attached to conventional risk capital are often debilitating and potentially fatal. A lack of risk capital on suitable terms, on the other hand, frustrates entrepreneurial ambition and checks economic growth. This book proposes a fresh, innovative solution to the search for risk capital that should suit enterprises and investors alike.

The book shows how the dual functions of equity risk capital and ownership capital — can be separated. This innovation can pave the way for raising risk finance without affecting the ownership or control of a company, and without excessive traditional borrowing. The model for achieving this is royalty funding, a system grounded in the proven and familiar practice of licensing. Under this system enterprises pay for the invested risk capital by means of royalties on the sales revenues they achieve, rather than become debtors or partners to those who provide the funds. Royalty funding will benefit both those who own and manage enterprises and also the investors who receive a contractually committed return whilst maintaining the security of asset ownership in the event of a failure of the enterprise.

The book also explains how royalty funding could be put into practice for a range of different enterprises; from small and medium-size firms to major companies, providers of public services and other diverse enterprises.

Offering a compelling alternative that complements current financial models, this book offers an innovative solution for creating risk capital. It is, thus, an essential read for anyone involved in establishing, running or investing in successful enterprises; for entrepreneurs, business advisers and consultants, finance professionals, venture capitalists and angel investors, as well as policymakers and academics.