Venture capital is a great product that produces the highest rate of return. But it has drawbacks that increase its cost to enterprises, restricts its use to a very narrow population of companies, and doesn’t add the value that entrepreneurs expect when they sell equity to investors.
Seasoned entrepreneurs recognize these negatives. Many with the best projects bypass the private equity industry in favor of more suitable or cheaper investment alternatives.
Royalty based schemes overcome many of these limitations. Deals are transacted with an investment process that is more efficient and less costly than its venture capital counterpart. It creates new options for liquidating investments to give investors more flexibility and lower the cost of exiting transactions.
These features reduce the cost of capital to make money more affordable for medium growth businesses. As off-balance sheet capital, royalty financing appeals to family run companies that are averse to selling equity to non-family investors. Financing these underserved investment niches increases deal flow turnover thereby reducing the costs to find and transact investments, another source of cost savings.
Financière Saint Dominique (Paris) engaged IVI to establish a royalty-based initiate with €5MM and invest in underserved and underfinanced SME niches in France and Germany. IVI educated and trained Financière’s 57 member staff in this investment process. Financière invests €1.5 Billion across multiple asset classes from venture capital through mezzanine, MBOs and LBOs. The company is the private equity investment arm of Group Crédit National, Paris.
Leadership and solutions provided by IVI include:
- Advised Financière in the use of royalty based schemes to increase its market share with medium growth and family businesses and improve liquidity in cross-border investing.
- Upgraded the skills of Financière’s senior managers and portfolio officers to:
- Better assess risk and speed debt/equity investment decisions thereby reducing transaction costs
- Securitize investments with the ‘Silent Lien®’ and liquify assets in the secondary market. The ‘Silent Lien®’ gives investors a powerful alternative to established exit strategies, especially in regions like Europe where a parallel, liquid market like America’s NASDAQ does not exist as a provider of liquidity.
- Transact investments of €100k-€250k into SMEs in advanced manufacturing, software, computer hardware and peripherals
“Consider IVI as your investment advisor and partner in planning and executing international private equity schemes. We can help you avoid the learning curve costs that skilled investors inadvertently incur when executing new investment programs.”