Investors
  • Overview – Investor
  • Protective Strategies
  • Investment Highlights
  • Our Diversified Approach
Entrepreneur
  • Overview – Entrepreneur
  • Why Consider Royalty Financing?
  • Our Investment Criteria

Overview – Investor

We provide capital to established and successful private companies in exchange for a monthly cash distribution. These distributions are based on an initial yield on our investment which is then linked to the revenues, or a similar top-line metric, of the company. Each year we adjust our distribution in tandem with the percentage change in the company’s revenues. With the objective that as our investee partners grow, so does our distribution and thus the return we deliver to our investors. This investment structure is called participating preferred securities. Participating since it participates in the growth of the company and preferred because it ranks ahead of a company’s common equity.

Why Choose Small Businesses?

There are roughly 30 million small businesses in North America. These are companies with less than 500 employees and they represent about 30% of the employment in Canada and the US.

Despite the incredible size and scope of this market, many small business owners continue to experience tremendous difficulty in sourcing capital to pursue a growth opportunity, to acquire a competitor, to buy out a partner, or even to transition the ownership of the company to a buyer or a family member.

In many ways, small businesses just don’t fit into the highly regimented world of traditional bank financing. Temperance Capital bridges the financial gap by providing stable and profitable small businesses with the permanent capital they need through a preferred royalty on the business—a structure that, for Temperance investors, has the upside of equity with the predictability of debt.

Protective Strategies

Risk mitigation is one of the most important aspects of any investment model, and at Temperance Capital we have multiple layers of protection in place.

 

Financial Constraints


We include consent rights on large transactions like acquisitions, expansions, and financing arrangements. We have the right to veto decisions that might negatively affect our investment.

Consent Rights


We include consent rights on large transactions like acquisitions, expansions, and financing arrangements. We have the right to veto decisions that might negatively affect our investment.

Equity-Step in Rights


To ensure that our partner companies hold to their end of the agreement, we also have equity step in rights. We have the authority to effect changes intended to get things back on track rather than simply forcing the company into receivership and bankruptcy.

Overview – Entrepreneur

We’re looking to invest $2 to $20 million alongside managers of strong, stable, and profitable businesses.

Royalty financing has been used extensively in the mining, oil and gas, and pharmaceutical industries for decades. Temperance Capital is bringing this same structure to the small business market at large.

Our investment structure, which we call a preferred royalty, is a hybrid of equity and debt. It is like equity in that it is permanent capital with no term, no amortization, and with distributions that participate in the growth of the company. But it is also like debt in that distributions must be paid, it is senior to equity, and it is protected with financial covenants and certain other contractual rights.

Temperance Capital can help structure, arrange, and provide permanent capital for your business that leaves you in control. Capital that is cheaper than common share equity and less restrictive than debt.

Royalty payments are highly aligned to your company’s success. When we invest into a firm, we form a true partnership. If your business grows, your payments to us grow. If your business experiences a period of challenge, your payments to us decrease. Plus, royalty capital stays in place as long as you want it to. There’s no need to stress over lump sum payment schedules, or amortization schedules. Use the capital for as long as you need it, and pay us back when you want to.

While we will look at high growth investment opportunities, we prefer to work with low volatility companies in stable, established “old economy” industries.

Predictable, profitable, and consistent.

If this sounds like your company, then we’d love to talk with you about your financing needs.

Why Consider Royalty Financing?

Our capital is a fit for owners who don’t want to compromise on the ownership or operational control of their business.

We invest capital into your company in exchange for a monthly distribution, initially equivalent to 12% to 16% per annum on our capital investment. In subsequent years this distribution is adjusted up or down based on the growth in your business’ revenue. We don’t take an ownership stake in your business nor do we expect a board seat.

Here is why a preferred royalty investment from Temperance may be right for you:

〉LESS EXPENSIVE THAN EQUITY

As income investors we target a lower return than private equity investors. Unlike equity, our upside is capped, so you reap the rewards of your hard work.

〉PERMANENT CAPITAL

Our investment carries no amortization payments or term. Our expectation is that our investment will be a long-term component of your capital structure. Since we do not require any repayments of principal, your financial risk is lower, and your free cash flow is higher. You can run your business as you want without a looming deadline for our liquidity.

〉TAX EFFICIENT

Like debt, preferred royalty distributions are tax deductible expenses.

〉YOU KEEP CONTROL

Our capital is passive, non-voting, and non-disruptive. We have no requirement for a board seat or other intrusive restrictions. You build your company and we believe you know best how to keep building it.

〉LIMITED PARTICIPATION IN GROWTH

That majority of the growth in your business still accrues to you. Growth from an acquisition or increased profitability from margin enhancements or operational improvements do not increase your payments to Temperance.

〉FREE OF NUMEROUS DEBT-LIKE COVENANTS

Only in cases of extraordinary events is our consent necessary.

〉YOU CAN BUY US OUT IN THE FUTURE

Our preferred royalty can be a permanent source of capital with no obligation for repayment or it can be repaid at your option. You are in control.

〉TRUE PARTNERS

When you grow, we grow. If you stumble, we feel it as well. Our distribution is tied to your revenue, so unlike debt with a fixed payment, if your revenue declines, so does our distribution. And without a term on our investment we can be your financial partner for many years.

Our Investment Criteria

In general, the common characteristics of businesses that Temperance will invest in are:

〉Experienced, committed and passionate management team

〉A sustainable business through defensible market, customer    and product positions

〉Good long-term industry fundamentals

〉History of stable or growing earnings

〉Transaction size of $2 million to $20 million

〉Free cash flow of $1 million or more per year

〉Reasonable debt level

〉Predictable capital expenditures

〉U.S. or Canada based

Investment Highlights

ATTRACTIVE YIELD

Preferred royalty investments generate high current yields, allowing us to deliver superior returns to investors.

DEFINED EXIT

Preferred units are redeemable at the purchase price after the fifth anniversary.

YIELD UPSIDE

Preferred unit yield can grow over time, because 80% of royalty growth is streamed to preferred units.

EQUITY UPSIDE

Each preferred unit is tied to a common unit, giving investors equity upside.

DIVERSIFIED PORTFOLIO

Our portfolio includes more than 10 U.S. based small and medium sized businesses.

TARGETING SUCCESSFUL AND MATURE COMPANIES

We only invest in successful and well-established companies with substantial free cash flow.

LONG TERM BUY AND HOLD STRATEGY

We make preferred royalty investments in superior private companies and then hold those investments for the long term.

PROTECTED BY RISK MITIGATION STRATEGIES

We protect investor’s capital with positive and negative covenants, equity step-in rights, as well as traditional security in certain cases.

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Our Diversified Approach

For direct investments we begin by identifying a strong and profitable company with a need for external capital. We review the company, analyze their financial health, and if all of our standards are met, we will finance the opportunity through our preferred royalty capital investment. Our direct investments are heavily screened. On average we review 2-4 opportunities each week. Our goal is to make 2-3 direct investments each year, so we are careful to only select the most consistent and predictable opportunities. Our target yield on this type of investment is between 12% and 16%.

 

For our portfolio investments, we partner with established private equity firms with a strong record of success. Our first such partnership is with Toronto-based Lynx Equity Limited. Like us, Lynx is also unique. They acquire stable and consistent small businesses outright, and retain the previous owner for a period of transition, allowing responsibilities to shift over to the management team gracefully over a period of 2-3 years. Like us, they keep the company intact and they focus on maintaining the practices and processes that have made the company successful and profitable.

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Have Questions?

We are happy to discuss any appropriate financing opportunities with you!

         

416-864-7111

some of our success stories

Find out how we have helped clients access the capital they need.

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