An Initial License Offering (ILO) can be considered as a new-age way for seed stage and startup stage firms to raise money.
It’s a very unique way of fundraising in which companies use the best attributes of crowdfunding and modern-day social media.
Companies that are revenue ready and scalable can issue an ILO and attract thousands of buyers and promoters who must qualify the ILO by promoting the underlying product or service on social media or other more traditional channels.
The sales are booked as revenue, but used like capital as they come in under a restricted offering all at once.
In short, ILOs are a revenue-based way of increasing awareness, raising capital and marketing to a wide audience at the same time.
How Exactly Does An ILO Work?
An ILO is different from equity crowdfunding in the sense that the transaction is not considered as an investment, but a license sale.
The license — which is not in a physical form — gets sold to investors, who will be entitled to a percentage of the company’s gross revenue (similar to a commission) in exchange for promoting its products or services.
This is the other unique element of ILO — buyers are required to promote the product on social media to ‘qualify’ the licenses and trigger inclusion into the royalty pool.
Thousands of license holders harness the ‘people power’ element to help a business succeed with promotional efforts. By spreading the word on social media or to a business network, it helps to raise awareness and increase sales, which ultimately rewards both sides.
Companies pay out quarterly royalties to their license holders after their first year of their ILO offering. These royalties are paid into a pool, which will be shared equally with ILO holders — this generally makes up approximately 10 per cent of the company’s gross revenue.
The potential return is not limited to an established percentage. The better the company does, the larger the royalty payments and the greater the ILO value.
After a year and a half, these licenses become tradable on the platform, allowing license holders to cash out their initial investment.
At the end of the three years, the license holder will have the option to convert the licenses into shares or sell the license back to them at the same price as when the license was purchased.
Do note that the ILO unit is paying a percentage of the revenue stream and not from the profits.
This means that the ILO owner receives payments regardless of whether the business is profitable in the beginning years. But if the business proves to be successful and profitable, the ILO unit holder has the opportunity to exchange the ILO units for equity in the company.
It’s A Win-Win Situation
At the end of the day, the objective for an ILO is simple for buyers: support the companies you love, and get paid royalties in return.
It’s a way to show tangible support for the companies you believe in and physically contribute to their success.
Essentially, it lets anyone participate in the business growth when they purchase a right to a percentage of their future revenues.
So how exactly can you be involved in this growth journey?
Established in 2016, We The People (WTP) launched the world’s first store dedicated to providing a platform for crowdfunded startups to sell their products. This breaks the first barrier, allowing anyone to see, touch, feel and purchase these products on the spot.
Founded by four Kickstarter fans and serial creators — Ryan Sim, Joel Liew, Nison Chan and Jay Kang — it aims to build, foster and accelerate the innovations of the future.
They firmly believe that amazing ideas don’t have to come from big companies and that anyone can create an awesome product.
Over the years, WTP has grown from 14 brands to over 200 brand with multiple product lines. Beyond Singapore, it also has stores in Malaysia, South Korea, and North America, establishing themselves as an accelerator.
It has also recently confirmed a retail space in Silicon Valley, which will open in March 2020.
Despite their significant growth, their business journey has been fraught with challenges.
“We were self-funded, never having the luxury of a big marketing budget or paying ourselves anything more than basic,” recounted Ryan, managing director of WTP, in their company blog.
“Everyday was a struggle with 20-hour work days, fatigue (both mentally and physically), slow cash flow, (among other things). If it weren’t for pure passion and grit, we wouldn’t be here today.”
To fuel the next stage of their journey, WTP has partnered with Initial License Offering Exchange (ILOEX) to raise funds for the business.
WTP intends to raise US$3 million through the sale of license units, which in turn, entitles license holders to annual royalties. Licenses are capped at 100,000 units, currently valued at US$30 each.
Show Your Support Today
WTP’s growth thus far has been incredible, but with a team effort, it can be even better.
The company currently needs two things: capital and marketing, and the ILO helps to achieve both.
With the support of people purchasing their ILO, they can rapidly scale their business. ILO investors can help them grow by telling their story on social media, while they put their capital to good use and make more revenue to drive growth.
How exactly is WTP using the funds raised though?
According to WTP, it will look at expanding its stores and franchising in key locations around the world, grow its For Creators, By Creators (FCBC) network and the community platform for startups, investors and manufacturers, as well as enhance its services.
But in the event that they are unable to raise US$3 million, what happens next?
“WTP will utilise the funds raised to implement those portions of the strategy that create the most opportunity for growth,” said the firm.
“The outstanding licenses will receive their proportionate share of the 10 per cent of revenues allocated. The remaining licenses will be available for a future offering in the future.”
To be a part of WTP’s growth, check out their ILO platform and learn how you can get paid for your support.
Disclosure: Vulcan Post gets a small cut for every successful ILO.
Featured Image Credit: We The People