Monday, September 30, 2013
An evolving niche in IP Licensing is a financing tool called Royalty Monetization. This financing tool enables the licensor to receive the minimum guaranteed payments from a licensing contract upfront rather than over the term of the licensing agreement.
Royalty Monetization is a flexible financing tool. For example, in these types of transactions, the owners of the licensing royalty streams can sell (or assign) all or part of the royalty streams to a buyer (funding source) in return for cash paid up front. It can also be structured to limit the royalty interest to certain products, defined territories or certain periods of time. Royalty financing can also be structured on a deferred basis, and used to provide the funding to complete the development of an intellectual property.
Royalty financing costs are typically a percentage of the total guaranteed amount, which is the return to the investors providing the funding. Royalty financing transactions vary from a minimum of $5 million (in guarantees) to hundreds of millions. The financing is completed through a private placement, which can provide funding in as little as 30 days. The investors are typically pension funds and insurance companies.
There are three significant requirements needed for a licensor to qualify for this type of financing: 1) an assignment of or an absolute and unconditional promise to pay from an investment grade licensee, 2) a predictable cash flow, and 3) specified payment dates.
LCG can assist IP licensors with royalty monetization transactions. If you have an IP licensing deal that fits the above criteria, please contact us at 646/395-9572 or email info@licensingcg.com.
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