Royalties are a unique form of investment. Compared to stocks, they provide a stable, fairly low-risk alternative for investors. Instead of owning a share of the company's stock that fluctuates daily, investors are guaranteed a monthly payment based on the company's revenue.
A royalty is a monetary compensation paid to the owner of an asset (often an intellectual property). The owner may license the asset to be used by another party, and will be paid a percentage of the net revenues of the asset based on its usage. Royalties can also be used to allow investors in a company to have a percentage ownership of future production or revenues that will be paid at specified intervals like annually, quarterly or monthly.
Royalties can be considered a fairly unique form of investment and normally offer a reasonably steady low-risk return on your money in comparison to more traditional investments like stocks. To give you an indication of the size of the market, upwards of $8 billion is collected annually by the Confederation of Societies of Authors and Composers on behalf of around 2.5 million artists around the globe.
The principle behind venture financing is to allow lenders to invest in a business in return for part ownership of the company and the investor looks to get their money back at a later date if the business is acquired or launches an initial public offering on the stock exchange.
Royalty-based funding allows a greater level of flexibility in the deal and the investor may not get a share of the company but instead receive a monthly or quarterly payment based on the revenue of the company, in return for the cash they have agreed to put into the business.
Natural gas or oil royalties
Owning a natural gas or oil royalty is not dissimilar to actually having part-ownership of the well itself.
The idea is to distribute profits to shareholders after covering operational costs, staffing and management fees and owning a natural gas or oil royalty trust will offer you the prospect of sharing in the fortunes of well you have put an investment in to.
Investors have the chance to share in the royalty streams generated by all types of entertainment mediums such as music, TV, movies and book publishing.
The royalties are due to the originator like the songwriter, artist or writer but in order to generate instant liquidity for themselves, they have the option of selling their work or a percentage of future income through Royalty Exchange.
Royalty income is auctioned off and the successful buyer can subsequently generate a consistent income stream in return for their investment.
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