Hermes Capital Partners

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Intellectual Property (Royalty) Participation-based Finance


Hermes Capital Partners is a middle market investment banking firm providing "Royalty-Based" (non-dilutive) financing solutions to middle market
 public and privately held companies and shareholders. The practice brings hands-on professional experience to growth-stage Companies and Shareholder seeking investment in a broad range of industries with a particular focus on New Technologies, Entertainment and Healthcare.

Unlike equity investing, extraordinary growth and huge market opportunities are not prerequisites for royalty financing.  Hermes Capital Partners' investment success is not dependent on an exit event, e.g. a sale of the company or a public stock offering. Our interests are always aligned with our client.

 

Our Goal:

Hermes Capital Partners is driven to provide growth capital to an underserved yet significant universe of privately held businesses with established and growing revenues where Companies and Shareholders can

Enjoy:

  • No Dilution of Ownership- Royalties are used as an alternative to warrants or stock as with traditional subordinated debt.
  • No Pressure to Sell- There is no need to force an exit, as royalty securities are self-extinguishing.
  • Competitive Cost of Capital- Lower targeted return multiples in exchange for predictable income back to the fund.
  • and

Benefit:

  • Less or non-dilutive to founders, VCs, shareholders.
  • Payments tax deductible after repayment of principal.
  • Transparent model and no hidden valuation formulas.
  • No forced exit needed to satisfy Investors' need for liquidity.
  • Interests are aligned to grow the top-line revenue.

 

 Our Structure:
 
Royalty financing provides growth capital in exchange for a fixed percentage of a company’s future revenue (the “royalty”). The company pays the royalty monthly until its total payments reach a mutually agreed upon cap, which is typically expressed as a multiple of the investment amount.
 
The royalty investment is reflected as a long term, secured promissory note on the company’s balance sheet, with the principal amount treated as a long-term liability. In most cases, a portion of the royalty payments is tax-deductible, significantly reducing the after-tax cost of the loan.
 
Royalty financing also includes a small stock warrant as a way for the investor to participate in the long-term success of the business. Royalty financing from Hermes Capital Partners provides entrepreneurs with an attractive new financing alternative.

 

Hermes Capital Partners is seeking growing companies led by passionate and committed entrepreneurs and companies with the following characteristics:

  • $1m-$15m in annual revenue.
  • A two year minimum operating history.
  • Sustainable positive cash flow.
  • Current gross margins (or gross margin potential) of 50% or greater.
  • Provides preferably a technology-enabled business service or software/software-as-a-service.
  • Seeking growth capital in the range of $1,000,000 to $3,000,000.

Of course other factors enter into the underwriting decision such as management, volatility or concentration of sales, competitive risk, and external economic and market factors.
 
Hermes Capital Partners has developed a financial model for evaluating the issuance of the security based on forecasted revenue in which Hermes and the management of the company work together to prepare a realistic forecast that everyone can agree on. Through the use of the model, the financing cost and funds flow can be seen over the life of the financing, and compared to the cost of capital for similar sized equity or debt financings.
 
The model also illustrates the effect of the financing on the Company’s enterprise value and shows how shareholder value could increase. Of course, as with any projections, realistic revenue growth forecasts are essential so that the various financing structures can be modeled accurately.


Our Model most of all thrives on the value of a Company's "Human Capital" which is the principal foundation for any success.

 

 

© 2011 Hermes Capital Partners, LLC All rights reserved

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