# Royalty Financing Is Specialty Finance A music royalty lender buys a decaying, predictable cash flow below its present value, and funds the purchase mostly with debt. ## First principles 1. **The asset is a predictable decay curve.** - Streaming revenue falls fast after release, then flattens. - Old tracks have a flat, provable curve. This is why Duetti first bought only tracks older than 2 years. 2. **Pricing edge = data edge.** - Pay less than the forecast value. Be right more often than competitors. - The underwriting model is the product. 3. **Cash control comes first.** - The funder must sit in front of the cash. The distributor or collection society pays the funder first. - Routes: distributor partnership (beatBread, RoyFi) or outright ownership (Duetti). 4. **The capital stack grows in stages.** - Equity pays for the team, the tech and the first deals. - A warehouse credit facility lends against the deals already done. - Securitization (ABS) refinances a seasoned pool at lower cost. - Each stage needs the track record of the stage before it. 5. **Distribution must be cheap.** - The beatBread average deal is about $60k. That works only with low acquisition cost. - Channels: distributor portals, embedded offers, inbound. > [!note] Proof by contrast > RoyFi has the same product but no institutional credit partner. It raised about $2.5m and stayed small. The credit facility sets the size of the business, not the product. ## Role of value-added services - Services are an origination channel, not a profit line. - They bring artists in cheaply. - They produce the data that improves underwriting. ---- tags: #boat links: [[Music Royalty Financing MOC]] [[Competitor Teardown - beatBread Duetti RoyFi]] [[Critical Assumptions and Non-Negotiables]]