If you owe 5% of a company and receive a 5% royalty, which aspect is more valuable as the value goes up?
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Answer:
Too broad to answer - for example, is the 5% royalty on all products or just existing products (in which case, you want 5% of the company). Or, what are the distribution agreements for profits/equity. If the company is going to play all profits back into the company for the next 10 years, you may actually see nothing at all (what happens if it goes bankrupt 9 years from now after 8 years of profits). Each aspect has pros and cons.
Steve D at Yahoo! Answers Visit the source
Other answers
Too broad to answer - for example, is the 5% royalty on all products or just existing products (in which case, you want 5% of the company). Or, what are the distribution agreements for profits/equity. If the company is going to play all profits back into the company for the next 10 years, you may actually see nothing at all (what happens if it goes bankrupt 9 years from now after 8 years of profits). Each aspect has pros and cons.
Steve D
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