Comparing the Five Structures

Use this chapter after reading the relevant instrument chapter. It brings the differences together without repeating each instrument’s full explanation.

Primary comparison

Structure Investor’s principal rights Potential issuer benefit Main issuer tradeoff Tokenized secured notes Contractual debt rights and specified collateral remedies Capital without necessarily issuing equity Interest, repayment, covenants, and collateral commitments Royalty-linked instrument Payments calculated from a defined revenue, royalty, or other commercial measure Financing connected to commercialization or revenue Sharing future economics and administering the payment formula Tokenized preferred shares Equity with negotiated preferences and other rights Capital with customizable economic and governance terms Equity dilution and preferences affecting existing holders

Tokenized

Tokenized parent-company shares Equity in the parent company Capital raised directly at the parent level Parent-level dilution and applicable issuance requirements Core principle: There is no universally best structure. The appropriate arrangement depends on the issuer, business needs, financial capacity, investor rights, and applicable requirements.

Collateral and priority

Priority describes which interests rank ahead of others for a specified claim or distribution.

As Chapters 7 and 9 explained, collateral protection and equity preference are different. A preferred shareholder does not obtain a secured creditor’s rights merely because the subsidiary owns valuable patents.

A royalty-linked investor does not obtain priority merely because payments reference an identifiable income stream.

Focused exposure versus broader exposure

Structure Exposure depends primarily on

Secured notes Borrower performance, repayment sources, and collateral arrangements Royalty-linked instruments Defined receipts plus the parties and protections supporting payment Preferred shares Issuer performance and the negotiated share rights IP-subsidiary shares Subsidiary assets, contracts, expenses, and dependencies Parent-company shares Parent operations, investments, subsidiaries, and obligations A focused investment can still depend on the broader group.

For example, an IP subsidiary might rely on the parent for development, sales, and administration. Its separate identity does not eliminate those dependencies.

SDR question: Which business activities and counterparties must continue performing for this investment to work?

A counterparty is another party whose obligations or performance matter to the arrangement.

Comparing exit possibilities

An exit is a way an investor realizes value or ends the investment. Structure Possible exit or realization mechanism What must be established Secured notes Repayment, permitted sale, or applicable redemption

Payment capacity and actual terms

Royalty-linked instruments Participation payments, cap completion, buyout, or permitted sale Duration, payment formula, and termination rights Preferred shares Redemption, conversion, sale, or transaction distributions

Conditions and financial capacity

IP-subsidiary shares Distributions, sale, buyback, or subsidiary transaction

Governance, buyer demand, and rights

Parent-company shares Distributions, market sale, or transaction proceeds Trading access, liquidity, and market conditions Tokenization does not guarantee an exit.

A permitted transfer, an available trading venue, and a willing buyer are separate matters.

What each transaction may help value

A $5 million secured-note sale does not establish a $5 million patent value. A $25 million subsidiary equity valuation does not automatically establish a $25 million IP carrying amount.

A preferred-share price does not necessarily apply to common shares with different rights. As Chapter 5 explained, transaction evidence, GAAP recognition, and market capitalization require separate analysis.

One company, five possible discussions

Hypothetical prospect: A parent company:

• Owns software and patents.
• Has some licensing receipts.
• Wants $10 million for commercialization.
• Prefers to retain control.
• Has not yet verified collateral availability or subsidiary readiness. Structure Why it might deserve discussion Question that could change the assessment Secured notes May avoid equity issuance Can current cash support payments and maturity?

Royalty-linked instruments Could connect payments to licensing receipts Are the receipts sufficient, reliable, and available?

Preferred shares Could tailor investor economics and control rights Are preferences and redemption expectations acceptable?

IP-subsidiary shares Could focus funding on the commercialization business Are rights, costs, and intercompany dependencies properly defined?

Parent-company shares Could fund the broader business directly Is parent dilution acceptable, and what approvals apply?

The facts justify evaluation. They do not establish a winner. The SDR should record management’s priorities and unresolved facts, rather than select the structure.

Economic comparison: the same annual amount can mean different things Assume a company seeks $5 million. The following alternatives illustrate different obligations; they are not equivalent offers or market-rate examples.

terms Subsidiary equity Investors receive 20% post-issuance ownership Parent retains 80%, assuming it previously

Area Required clarity

Issuer Exact legal entity

A proposal is incomplete if it describes benefits without explaining the corresponding rights and obligations.