Most startups and very early-stage companies with very little financial history generally find most traditional funding sources – banks – closed to them. Many banks consider a startup anything less than two years old, so if a small business owner needs financing, it usually needs some type of non-traditional funding. One source of funding that is being seen more often are royalties, or revenue-based financing.
Royalties became common in the early 1900’s to finance oil and natural gas exploration. Owners of land where oil and gas prospectors wanted to drill gave them the rights to drill in return for a participation in the revenues or royalties. It later came to be used in industries such as music, book publishing and pharmaceuticals.