Royalty Finance

Arctaris invests in healthy, growth-stage companies in broad range of industries:

• Companies should have at least $5M in annual revenues.
• Companies should be cash flow positive.
• Companies may be public or privately held.
• Companies with locations in underserved or rural markets are desirable but not mandatory.
• A deal sponsor (e.g. PE Fund, pledge fund, or individual equity investors) is desirable but not mandatory.

Companies 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.

Structure

Standard Loan Base:

• Current coupon, paid monthly, with 5-year principal amortization
• Senior secured or subordinate with UCC perfected lien
• Low total leverage ratios of 1.0-2.5x

Royalty Enhancement:

• Royalties pay a percentage of incremental sales
• Royalties are secured by same lien as base loan
• Inflation protection through sales peg

Company benefits:

• Less or non-dilutive to founders, VCs, shareholders
• Flexible/affordable obligation that matches company’s payments with revenue growth
• Payments are tax deductible after repayment of principal
• Transparent model –no hidden valuation formulas
• No forced exit needed to satisfy Investors’ need for liquidity
• Interests are aligned to grow the top-line revenue