On Sharktank, the majority of entrepreneurs who appear on the show almost never take Kevin’s royalty deals. They prefer to give away equity in their business. What exactly are the downsides of royalties, especially the ones that go away after the investor makes certain returns? I don’t get the disadvantage since Kevin will also be involved in boosting your sales and only taking a percentage of sales. It feels to me like paying an affiliate marketer.
In: Economics
A lot of startups need to initially sell their products at a loss. This is because they need to keep prices low enough to attract customers, but aren’t yet selling enough to efficiently manufacture their product. If you sell equity that doesn’t effect how long you can operate at a loss, but if you are paying royalties for every item you sell to customers you are increasing your losses per item and will run out of capital faster.
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