Arthur Fox, Godfather of Royalty-Based Finance, on What VCs Are Missing
Earlier this week, Seattle entrepreneur and investor Andy Sack debuted his newest startup, a revenue-based financing company called Revenue Loan, which will lend startups money in return for a 3x-5x repayment whenever feasible. Sack isn’t the first person to try out the model. Rather, Boston-based entrepreneur-investor Arthur Fox says that he’s “kind of the godfather” of the methodology, and that he’s been applying it -- successfully -- for nearly 20 years. Fox co-founded several companies in the ‘80s -- Octek Computer Technology, Lexidata Corp. and Medicel -- before starting Royalty Capital Fund in 1992, whose “royalty-based” approach entailed buying the right to a percentage of a company’s receipts, and whose two funds' IRRs, says Fox, were both north of 50 percent. Now he's partnering with a Dallas-based group, Cypress Growth Capital, to create a new fund and preparing to raise another Boston-based vehicle, next year. We talked yesterday about his approach, and why more people haven't embraced it thus far. Q&A after the jump...
