And I’ve seen many people incorrectly compare revenue-based loans and real royalty
investing, here’s the difference:
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Most people use royalty investing to describe both.
But the distinction changes the target universe of companies, scalability, balance sheet
treatment, and alignment between investor and company.
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Revenue-based loans are a niche-model, sometimes also referred to as SaaS lending.
The investor provides capital for a limited term. The company, typically a small SaaS
company, repays through a share of recurring revenues over a fixed term. Upside is capped.
The structure appears as debt. The funding amount and scalability is limited. The loan can
lead to refinancing risk.
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A royalty purchase is structurally different.
The investor does not lend. The investor acquires a defined share of future revenues for a
predetermined period. It is a royalty asset, not a loan.
Payments scale with revenue. When revenue grows, the investor earns more. With revenue
growth the yield increases and the value of the royalty asset increases. There is no refinancing
risk.
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That full alignment makes royalty investing fully scalable and allows for much bigger
funding amounts. Royalty payments flex with the business, reducing the cash-flow mismatch
that typically triggers default.
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Royalty investing is not limited to software and to small companies. Rather it has been used
across many different sectors for decades, also for larger companies and bigger funding
amounts.
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In an IP-based economy, royalty investing is becoming the mainstream form of financing.
The financial instruments are there and have been tested and proven.

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