'Revenue-based financing' arrives in Canada

Share

Burgeoning Canadian companies have a new way to quickly get the cash they need.

Instead of borrowing from the bank or issuing shares to a private equity backer, small but growing companies can now finance themselves by selling royalty streams.

In exchange for a small chunk of their revenues, typically three to four per cent, interested companies can get cash up front to help finance acquisitions or capital spending.

While the practice is common in mining, film and pharmaceuticals, 'revenue-based financing,' as it is known, is barely heard of in other industries – especially in Canada. Grenville Strategic Royalty Corp. is looking to change that.

After partnering up with a small shell company that had $7-million in cash, and, more importantly, a stock exchange listing, Grenville now trades on the S&P/TSX Venture Exchange and is looking to invest its capital in industries where royalties are rarely heard of. Instead of asking for shares, the company is simply looking for a straight cut of future revenues.

As far as co-founder Bill Tharp knows, Grenville is the only player in the Canadian market willing to offer up such terms. The company has already inked five deals, and Mr. Tharp said they are actively working on just as many new opportunities, each with an investment of about $1.5-million. (Both Mr. Tharp and his partner Steve Parry have histories in the cleantech world.)

To some, selling a revenue stream simply looks like funding with very expensive debt. But Mr. Tharp tells these companies to look at it another way: "it's very inexpensive equity," he said. "The more sophisticated players get it very quickly."

Even though Grenville has what appears to be a first-mover advantage, his team would actually like to see some other players emerge, to help create a bit of an ecosystem for this investing style in Canada. "We encourage anyone else to come in, because we'd love to co-invest" in deals with them, Mr. Tharp said.