Definition of Royalty Financing Royalty financing is an investment vehicle where the investor lends money to investees against its future revenue streams.1 The investor is repaid via royalties, a regular stream of payments that are typically calculated based on a percentage of the company’s gross revenue.2 Since repayments are based on a percentage of revenues,…
Year: 2014
Marijuana and Banks
On January 23, Attorney General Eric Holder announced that the federal government was taking steps towards making it easier for depository institutions to do business with marijuana sellers.1 Holder cited “public safety” concerns noting, “substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited is something that…
How Private Equity Can Hedge Their Bet with ObamaCare
The Affordable Care Act, also known as ObamaCare, came into effect earlier this year. Not surprisingly, ObamaCare has proven to be an extremely controversial and divisive issue. Many opponents of ObamaCare argue that the law will prove to be extremely detrimental to the economy by burdening companies with increased costs and regulations.1 The relevant topic…
The Caribbean Detroit: Puerto Rico’s Debt Crisis
Despite the severity of the debt circumstances in Puerto Rico, the financial crisis has gone largely unnoticed. The lack of attention on Puerto Rico is particularly shocking when comparing the crisis to the current state of Detroit. The island has a population of 3.7 million and debts of about $87 billion; this compares with a…
Newly Formed Private Equity Funds “Stalking”, not “Pouncing” on Mining Assets—For Now
There has been a lot of buzz lately in the private equity world about the formation of new funds and the raising of capital specifically aimed towards acquiring assets in the mining industry. Specifically, in their article on Bloomberg.com, Jesse Risenborough and Ruth David talk about how this recently created pool of private equity money…
Corporate Law in Asia Symposium This Week
We welcome you to join the Michigan Journal of Private Equity and Venture Capital and the Asia Law Society for the Corporate Law in Asia: Trends and Opportunities symposium. It is being held this Friday, February 21, 2014 in South Hall Room 1020 at the University of Michigan Law School. Registration begins at 8:30 AM, and the program…
Aeropostale’s PIPE Dream
Men and women of my generation, and likely their parents, will be very familiar with the clothing company Aeropostale, as it was a fashion staple in the 90s and early 2000’s. However, since its heyday the clothing company has been in steady decline. Things have gotten much, much worse for Aeropostale in the last few…
Hedge Funds: A Solution to the Collective Action Problem
There is a collective action problem in any system where an informed vote is costly to a shareholder.1 Such a collective action problem is present among shareholders of publicly traded companies in the United States.2 Small shareholders are rationally apathetic in their voting decisions because they assume (usually correctly) that their vote will not change…
Tech in 2014: Bring out the Bubbly or Pop goes the Bubble?
Giants like Facebook and Twitter have entered the public markets with huge valuations, and more tech companies are expected to follow in 2014. However, this is only stirring the debate on whether those popping champagne bottles are the precursor of a popping tech bubble. Some say that we are seeing the dot-com bubble all over…
The Dilemma of Minimum Threshold Requirements
Recently, several well-known and publicly held private equity firms released their fourth quarter 2013 earnings. This self-imposed requirement at many private equity funds, however, creates an under the surface effect on earnings results—minimum threshold requirements. A significant source of profit for many private equity firms are the performance fees the general partners earn on the…