Update 03/22/2018: Royalty Flow IPO is now available on the Motif Investing platform.
Expected to close first week in April.
Now here’s an interesting Reg A+ IPO deal available to all U.S. based investors. A company called Royalty Flow is in the midst of raising $11 million dollars. If successful, proceeds from the Royalty Flow IPO will be used to acquire a portion of the music royalties of rapper Eminem.
Music royalties are an uncommon asset class typically not available to individual investors. Royalty Flow is looking to utilize the JOBS Act of 2012 and a Reg A+ IPO to change that. Read the Offering Circular here.
How Will This Work?
First things first… Marshall Mathers, aka Eminem, himself is not part of or endorsing this deal.
The company behind this IPO is called Royalty Exchange. Royalty Exchange is an online marketplace for artists, musicians, and other royalty holders to buy and sell royalties. It already owns a portion of Eminem’s royalties from the years 1999-2013.
The company acquired the royalties from FBT Productions, owned by brothers Mark and Jeff Bass. FBT collaborated with Eminem in his early years and produced some of his work over the trajectory of his career.
FBT sold 25% of their Eminem royalty catalog to Royalty Exchange. Upon the completion of the IPO, Royalty Flow will purchase the share of the Eminem catalog currently owned by Royalty Exchange.
Royalty Flow (RLTY) then intends to trade on the Nasdaq Capital Market exchange going forward.
The company is targeting a minimum offering of $11 million. That’s 1,466,667 shares at $7.50 per share. The company is allowed by law to raise up to $50 million, 6,666,666 shares at $7.50.
Once Royalty Flow hits their minimum they can complete the IPO. However, if they are able to raise more than what’s needed to acquire the Eminem catalog, the leftover funds can be used to purchase additional royalties from other artists.
The end business model is to create a company with diverse holdings that produce reliable passive interest cash flows. Eminem’s catalog is the first step.
Why Invest in Music Royalties?
Music royalties are an alternative asset class with multiple revenue streams. According to Royalty Flow, owners of music royalties are paid based on streams, downloads, physical album sales, and other uses.
Royalty Flow believes the music industry is at the beginning of a new bull market after a 15-year bear market thanks to piracy and the move from traditional recordings to digital. Now that Spotify and Apple Music have figured out a way to get consumers to pay for streaming music, money is available to pay the artists.
We’ve already seen companies in the real estate crowding space make asset classes previously difficult to invest in more accessible to individual investors.
For example, Fundrise is utilizing the JOBS Act of 2012 to enable customers to invest in commercial and large-scale residential properties with as little as $500.
Royalty Flow aims to do the same thing but with Eminem’s music catalog. But this isn’t just about Eminem’s music, though he’s a solid baseline to start with. Producers, studio musicians, audio engineers, and other non-rockstars in the music industry receive royalties from work they’ve done. Like other assets, there’s a fair purchase value and subsequent cash flows associated with royalties.
If Royalty Flow can build a sustainable portfolio of long-term cash flowing assets, the business model may have legs.
How to Invest in the Royalty Flow IPO
It’s on our list of Best Online Brokers for IPO Investing.
We’re also familiar with Folio Investing because their parent company, FOLIOfn Inc, acquired Loyal3 and created FolioFirst for previous customers. Many Access IPOs readers began investing in IPOs through Loyal3.
FOLIOfn also runs the secondary market platform for LendingClub investors among many other services for financial firms.
To invest in the Royalty Flow IPO, all you have to do is create an account with Folio Investing and go to the Private Investing tab at the top right.
The minimum investment amount for the Royalty Flow IPO is $2,250 (300 shares at $7.50/share). The company intends to pay a growing and sustainable dividend but has not yet declared one.
Notably, the shares available are Class A common stock. Each share has 1 vote. Royalty Exchange will retain all of the Class B common stock each having 10 votes per share.
Royalty Flow has made signing up easy with this detailed video that steps you through the process.
This is an interesting asset class that doesn’t become available to the masses very often. The fact that it’s connected to a high-profile name like Eminem will give it some attention, especially to fans who will be more likely to hold the stock.
If the IPO is successful and additional royalties are acquired, this may become a growth and income play with a decent business model. Investors looking to diversify into an uncommon asset class now have that opportunity.
Please note: Before investing in this or any IPO, investors should perform their own due diligence. The mention of an IPO on Access IPOs is not a recommendation to buy or sell. We make readers aware of opportunities, but it’s up to the investor to decide if the opportunity is right for their own portfolio. Click here to read the Offering Circular for the Royalty Flow IPO. Also be sure to check out the Letter from Matt Smith, Chairman of Royalty Flow.
Photo credit: DoD News via Flickr Public Domain