Royalty financing is a funding model for growing companies that provides investment capital in exchange for a percentage of future revenue. One of the biggest benefits is that royalty financing is non-dilutive, which means a company does not have to give up equity or take on debt in exchange for capital.
How Royalty Financing Works
With royalty financing, a company is given a lump sum investment of capital or a series of payments over time. This money is typically used as growth capital that is invested in infrastructure, new product offerings or expansion.
In exchange for providing growth capital, the investor receives a percentage of the company’s future revenues over a period of time as a return on that investment.
How Royalty Financing Fits in a Company’s Capital Stack
When a growing company goes in search of external funding, there are typically a few options to pursue, which all come with pros and cons for entrepreneurs:
Royalty Financing and U.S. Cannabis
Royalty financing has emerged as an attractive funding option for companies operating in the U.S. cannabis market because of three main factors:
Royalty financing for cannabis circumvents these existing roadblocks in the market. For example, Tidal Royalty makes large capital investments, typically starting at $10 million, and determining a valuation of a company is not required to complete a deal.
How Tidal Royalty works with U.S. Cannabis Operators
Trusting that outstanding cannabis operators know how to run their business and bring in substantial returns, investors like Tidal Royalty provide funding and expert advice in exchange for a percentage of top-line revenue earned down the road.
The team at Tidal Royalty are pioneers in the Canadian cannabis industry, and can draw on years of expertise as both entrepreneurs and investors to support U.S. operators on their growth journey. Operators benefit because they get the funding they need, they retain their equity position, and they don’t have to give up control of operations.
Royalty financing for cannabis operators is the clearest path to raising meaningful amounts of expansion capital without issuing shares or giving up control of the company.
When Tidal Royalty invests in an operator, it only does well when the operator succeeds. Tidal Royalty won't exit or sell their shares when challenges arise. Tidal Royalty stands shoulder-to-shoulder with operators and are making sincere long-term bets on the economic prospects of their portfolio companies and the cannabis industry.
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