Due to SEC and FINRA restrictions, these sites do not and cannot raise equity unless they are broker dealers or authorized representatives and even then the cost is likely to be prohibitive. There has been no real change to the status quo and it is widely recognized that the SEC interpretation of the JOBS Act has been a dismal failure. In the United Kingdom, the FCA has taken an equally heavy hand to the regulations.
However, in many industries such as oil, music, publishing, cinema or even the medical field, royalties have been a traditional reward for owners of the property or intellectual property.
Seizing the opportunity to help struggling project owners, sites like Patronomy.com now provide this alternative. Royalty rewards allow those who provide up front capital to participate in and even take full or part ownership of the “property” and its future revenue.
Royalty rewards hold advantages for both parties. Owning equity in a private company has the risks of dilution, lack of or inadequate dividends and with no board representation. The recent Ocular Rift furore is another example of unprotected investors. With a Royalty Agreement, the investor has the full protection of a legally binding agreement and can sue (relatively easily) if the contract is breached.
From the company’s viewpoint, it does not have to release equity and has no external shareholders to appease, while knowing precisely what its commitments are. If a business needs capital in its embryonic stages, yet does not wish to surrender equity to its investors, royalty rewards permit them to raise the funds and all without excessive upfront costs. In many cases, there are also tax advantages to both company and investor.
Of course, even the entertainment industry has long supported royalties, but only now can this be part of their crowd funding campaign. Films and web series can regularly be created for $1 million or less, generating returns far beyond, and in perpetuity.
With equity based fundraising coming under a lot more scrutiny from the government, royalty based crowd funding is the wave of the future. Instead of contributing funds with no tangible return, a royalty rewards program enables the patron to know up front how much money will flow back into their pocket.
There will always be a place for equity based crowd funding when the regulations are re-written, but it's easy to see a world where companies can use both models in conjunction with one another, a win/win for all parties involved. By creating an environment that is rewarding to both the investor and the business, royalty rewards are becoming the wave of the future.
Patronomy.com provides project owners with access to professional guidance, continuous support and combined with their unique Affiliate Marketing program, Patronomy stands out in the crowd!