If you take on debt, you are committing future cash flows to fixed repayment.

And in most cases, you are also accepting covenants, constraints on how the business can
operate.
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That structure works well in large, established businesses with stable and predictable cash
flows.
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But for companies still scaling, it introduces friction.
Because if you genuinely believe your business will continue to grow at a high rate, that same
structure starts to work against you.
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- Cash that could fund expansion is locked into repayment.
- Flexibility disappears exactly when you need it most.
- And if markets tighten, refinancing risk shows up at the worst possible time.

So the real question is not “debt vs equity”.
It is: how confident are you in your own growth and value creation trajectory?
Because that is what should determine your capital structure.
If your conviction is high, equity becomes very expensive. Every percentage point you give
away today is worth materially more tomorrow. And debt constrains your growth.

That is where royalty capital behaves differently.
It scales with the business:
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- lower in weak periods
- higher in strong ones
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No fixed obligation. Royalty capital is long-term capital without refinancing cliff. No
operating constraints tied to covenants.
In practice, this creates an interesting effect:
Different instruments attract different companies.
Debt tends to fit companies optimising for predictability.
Royalty structures tend to resonate with business leaders who have a high conviction of
future value creation, because for high value creation companies equity is very expensive.
A royalty instrument does not just finance the business.
It filters for it. Royalties are self-selecting for quality.

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