Moore says one of the key features of the transaction was that royalties didn't start to accrue until 90 days after the deal closed and that royalty payments to the investors didn't have to be paid until 60 days after the revenues were recognized. Royalty financing can be easily structured with individual investors. State and federal securities laws do not apply. Because the royalty advance is essentially a loan, it is not subject to the web of regulations that affect other types of financing. In contrast, many equity financings require complex filings that generate significant legal fees and are heavily monitored by regulatory agencies.
Investors taste the fruits of success earlier.
A company funded by royalty payments increases its financing ability down the road. Specifically, says Moore, if the funds help increase sales, the company becomes a more attractive candidate for additional financing. Also, sometimes the presence of one kind of equity investor precludes the participation of other kinds. For instance, a company financed with institutional venture capital funds does not, in most cases, ever go back to raising money from individuals. The royalty structure preserves the equity positions of the founders.