I'm watching shark tank and they keep going on about royalty. They'll say something along the lines of:
I'll give you 500k for 30% equity and 10% royalty.
I don't really understand all this business stuff but what I think is going on it that they're giving 500k upfront for 30% of the company. The royalty I don't really understand. I'm thinking for every dollar made, they want 10 cents. Could someone clarify this for me? Thanks.
Yes, that's essentially what a royalty is.
http://www.investorwords.com/4330/royalty.html
I'm most familiar with the royalties paid to authors of published books. A publisher pays an author a certain percentage of the revenues from the books that are sold.
Thanks a bunch, Ms. Sue.
You're welcome, Lena.
Certainly! In the context of Shark Tank, when an investor offers a certain amount of money for a percentage of equity and a percentage of royalty, it means that they are proposing a specific financial arrangement.
Let's break it down:
1. Equity: Equity refers to the ownership stake or share of a company that the investor will receive in exchange for their investment. In this case, the investor is offering $500k for a 30% equity stake, which means they will own 30% of the company.
2. Royalty: A royalty is a payment made by the company to the investor based on a percentage of future revenue or profit. So, when the investor says they want a 10% royalty, it means that for every dollar the company earns in revenue or profit, the investor will receive 10 cents.
To give you an example, let's say the company makes $1 million in revenue after the deal is made. Based on the 10% royalty agreement, the investor would receive $100,000 (10% of $1 million) as payment for their royalty.
It's important to note that the terms of the royalty agreement can vary. Some deals may include a specific payment cap or a timeframe for the royalty payments, while others may have different conditions. These details would be further negotiated between the investor and the entrepreneur.
I hope this helps clarify the concept of equity and royalty in the context of Shark Tank!