User guide

This tool compares a revenue royalty against equity ownership in an early-stage SaaS company. You build scenarios, then read the charts and compare variations. This guide explains what the numbers and graphs mean — it does not walk through the form fields.

The three ideas behind the numbers

• Present value (PV) — future cash discounted back to today. A higher discount rate penalises distant cash more, so it shrinks far-off value heavily.
• Equity equivalent — the ownership stake whose value today equals the royalty's value today, measured against the company's value without the royalty. Above 100% is not an error: at high discount rates a multi-year royalty stream can be worth more than the entire discounted exit value, because equity here is counted only as exit value. It tells you the discount rate is driving the comparison.
• Lost growth & total economic cost — a royalty takes cash a cash-constrained company would otherwise reinvest, which lowers future growth and compounds. So the real cost is royalties paid + value lost because growth was constrained, and the second part often grows larger than the first.

Reading a single scenario

The detail page of a scenario shows four charts:

Revenue and royalty

Projected revenue each year and the royalty paid on it.

Lost growth: revenue without vs. with royalty

Two revenue paths. The dashed line is the baseline with no royalty; the solid line is revenue once the royalty's drag on reinvestment bites. The widening gap is revenue the royalty quietly removed — value beyond the payments themselves.

Economic impact over time

Cumulative cash paid as royalty versus cumulative revenue lost to constrained growth. The point to watch is where the lost-revenue area overtakes the royalty paid — the indirect cost compounding past the direct one.

Discount-rate sensitivity

How the equity-equivalent % moves as the discount rate changes. A steep line means the conclusion hinges on the discount-rate assumption.

Comparing scenarios

Select two or more scenarios in the list and press Compare selected. Each scenario becomes a column so everything lines up side by side, in three sections:

• Assumptions — every input value together with the rationale note recorded for it, so you see not just what differs between scenarios but why each value was chosen.
• Results — royalty PV, terminal value PV, equity equivalent, value lost to constrained growth, and total economic cost.
• Visualizations — for each scenario, the growth-rate curve, the without-vs-with-royalty revenue paths, and the economic-impact-over-time chart, aligned in columns so their shapes can be read against each other directly.

Below the table, the equity-equivalent comparison bar chart ranks the selected scenarios by their equity-equivalent %, for a quick headline read.

A good workflow: build a base case, duplicate it, change one assumption, then compare — the columns make the effect of that single change obvious.

Why each value? (rationale notes)

Every assumption can carry a short note explaining why that value was chosen. These travel with the scenario and appear on both the detail and comparison pages. The ranges below are a useful starting point for those notes — illustrative conventions, not benchmarks.

Back to scenarios