1 - Market timing
2 - Exit risk
3 - Valuation risk
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It’s valuation risk, here’s why:

You can basically always sell every business. The question is - at what valuation.
It comes down to psychology. We all have an optimism bias, and it's a good thing in many
cases. When you invest €100m into a business, it's much easier to imagine it becoming worth
€300m than dropping to €20m.

It’s how our brain works…

And I see this constantly. Everyone talks about what they've invested in, the names, the
sectors, the growth stories.

But nobody asks the critical question: at what valuation did you invest?

That's the relevant question, and that's where returns actually get made or destroyed.

I've seen many businesses decreasing in value even if their revenues have been growing
substantially. But people don't think about it at the outset. They're focused on the upside, on
the exceptional cases like Google or Nvidia that just kept climbing for 20 years.

But we're talking about more normal businesses here.

Great businesses, and they can absolutely be worth less tomorrow than they are today
because market sentiment changes and the hype subsides.

Royalty investing removes valuation risk entirely.

We don't invest based on multiples expansion or exit assumptions. We invest based on
revenues, fundamentals, and on what the business actually generates month after month.
Not what someone hopes it might be worth in 5 years when everything goes perfectly.

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