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The Reality of Royalties

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This story appears in the November 2015 issue of Entrepreneur. Subscribe »

Why would an investor want royalties? Doesn't he believe in my business?

The straight answer is no, he doesn’t believe in your business. Investors are all about risk and return. The more risk they see in a situation, the more return they must have. By asking for royalties in lieu of equity, the investor is telling you that your company involves more risk than he’s willing to take. Here are four reasons an investor may choose to suggest this route.

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