What is Royalty finance?

An Alternative Source Of Permanent Non-Control Capital

“Permanent” means that our investment has no maturity date, so there isn’t any pressure to “repay” our capital, as is the case with debt. Nor is there any requirement to sell all or part of your business in the future in order to deliver a return on our investment, like equity.

“Non-control” means that we do not take any ownership in your business. Nor do we get involved in operational or strategic decision-making.

You Do Well, We Do Well

We generate a return on our investment by purchasing a small, fixed percentage of your company’s future revenues. So when your business does well, we do well. And if, for whatever reason, your business slows down for a period of time, you pay less.

More Flexible Than Debt, Cheaper Than Equity

Capital Step’s Royalty finance solution is specifically designed to be more flexible than debt and cheaper than equity. It also ensures that our economic interests are aligned with those of your business. Click here for an overview of our process.

Capital Step Versus Debt

Whilst debt is often a powerful and efficient source of capital, it is not always available, or even appropriate, for every business.

In recent years high street banks have significantly reduced corporate lending and it is thought that the annual funding gap for UK-based MMEs runs into the tens of billions of pounds. Despite the emergence of alternative solutions, such as peer-to-peer platforms, the vast majority offer relatively small, temporary loans that often fail to fully satisfy the funding requirements of borrowers.

Where debt is available, it usually comes with onerous covenants, restrictions and guarantees. Furthermore, capital and interest need to be regimentally repaid over a fixed period of time and are not linked to the performance of the underlying business or fluctuations in its cashflows.
  • ✓ Our revenue-based royalty finance model is linked to business performance
  • ✓ We do not limit how funds are used, nor do we put onerous restrictions or covenants in place
  • ✓ We do not request guarantees and generally take no security over company assets
  • ✓ Our efficient due-diligence process allows management to focus on operations rather than raising capital
  • ✓ A single royalty agreement that is easy to understand

Capital Step Versus Equity

In addition to equity being the most expensive source of capital as a result of ownership dilution, the interests of external investors are often misaligned with those of existing shareholders and management. Yet, in the absence of viable alternatives, many businesses are forced to raise equity in order to secure funding.

At Capital Step we do not take ownership stakes in the businesses we invest in, nor do we request board seats, demand strategic input or try influence an untimely exit through preference rights. We invest in management teams and believe that they are best qualified to run their companies successfully.

  • ✓ No dilution in economic ownership for existing shareholders
  • ✓ No impact on operational or strategic independence
  • ✓ No board seats or loss of control
  • ✓ No emphasis on short-term growth or pressure to exit
  • ✓ Our due-diligence is quick, simple and transparent