Sourcing Fee
Definition
A sourcing fee is a fee captured by a platform or issuer for finding, negotiating, acquiring, packaging, or otherwise arranging an investment asset. In a royalty offering, it may be deducted from gross offering proceeds before remaining capital is allocated to the underlying royalty asset or issuer purposes.
Why it matters
Sourcing fees can materially reduce the buyer's effective per-dollar exposure to the underlying asset. A disclosed sourcing fee is not inherently improper, but it changes the economics: the buyer is paying not only for royalties, but also for the platform's access, structuring, diligence, and distribution work.
Common misconceptions
- •A clean trailing yield or multiple is a pricing snapshot, not a realized-return forecast.
- •Higher apparent yield can signal greater risk rather than a bargain: shorter term, faster decay, concentration, disputed rights, or one-time income can all inflate the number.
- •Fees, reserves, taxes, timing lags, and issuer expenses can make investor cash returns materially different from asset-level royalty economics.
- •Marketplace-cleared prices and issuer-set offering prices are not interchangeable because auction depth, disclosure, transfer mechanics, and wrapper costs differ.
- •A sourcing fee is not the same as an ongoing management fee; it is usually captured at the point of sale.
- •The fee can be fully disclosed and still materially affect buyer returns.
- •A high sourcing fee should be analyzed alongside acquisition multiple, Use of Proceeds, and ongoing admin fees.
Technical details
SongVest context
SongVest offering circulars disclose sourcing fees as part of the Use of Proceeds. AltStreet's SongVest review analyzes how these fees combine with acquisition multiples and debt-repayment allocations.
The key question is whether the sourcing fee compensates genuine origination and diligence value or simply increases the buyer's effective acquisition multiple relative to comparable royalty streams.
Buyer math
If an offering has a 30% sourcing fee, then only 70% of gross proceeds remains before other expenses or allocations. The investor's economic exposure should be modeled after all such allocations, not on gross proceeds alone.
For a $100 investment with a 30% sourcing fee and 5% of other offering costs, only $65 may be left for asset exposure or reserves. If trailing royalties are priced against the gross raise, the apparent yield can materially overstate investor economics.
Normalize the denominator
For a sourcing fee, define exactly what price is being measured. Use purchase price plus buyer fees, sourcing fees, transfer costs, reserves, and vehicle expenses when calculating investor-level economics. Gross asset price alone can overstate yield or understate acquisition multiple.
For issuer offerings, reconcile the price paid by investors to the amount actually allocated to the royalty asset after commissions, sourcing fees, legal and accounting expenses, debt repayment, and issuer working capital. For marketplace purchases, include buyer premium, closing fees, and any post-closing administration cost.
Example: a royalty stream with $20,000 of trailing income bought for $120,000 appears to have a 16.7% entry yield. If the buyer pays $8,000 of fees and expects $2,000 of annual administration leakage, investor-level first-year yield is closer to $18,000 / $128,000, or 14.1%.
Normalize the numerator
Trailing royalty income should be split by source, period earned, period paid, territory, payor, and right type. One-time sync fees, settlement payments, catalog bumps, viral spikes, or delayed foreign collections should not be treated as recurring base income without support.
Compare last-twelve-month royalties with three-year history where available. A young catalog, recently released song, or sync-heavy asset can have a very different forward curve from an older evergreen catalog with diversified sources.
If the royalty statement reports gross income, deduct administration fees, publisher or label shares, reserves, chargebacks, withholding, and platform or issuer expenses before comparing to investor distributions.
Forward-return model
Model realized return from forward cash flows, not from the entry metric alone. Include decay, growth, collection timing, fees, taxes, reinvestment assumptions, resale multiple, and exit friction. The same entry yield can produce very different IRRs depending on whether cash arrives quarterly, annually, or with long reporting lags.
Stress scenarios should include faster streaming decay, loss of playlist or radio support, no sync renewals, lower mechanical or performance rates, delayed statements, administrator changes, disputes, and a lower terminal resale multiple.
For long-duration rights, terminal value often dominates the underwriting. Use observable marketplace multiples for similar rights and haircut for illiquidity, concentration, rights uncertainty, and stale statements.
Comparing issuer offerings and marketplaces
Issuer-backed offerings may provide standardized disclosure, retail access, and packaged administration, but they can also add sourcing fees, issuer expenses, securities-law limits, and dependence on the issuer's continuing operations.
Marketplace auctions may expose buyers to more direct asset pricing, but public data can omit buyer-specific fees, taxes, future cash collections, and resale outcomes. Treat marketplace medians as pricing evidence, not proof of buyer performance.
The clean comparison is investor cash invested versus expected investor cash received, after all wrapper costs and timing. If two structures reference similar royalty streams but one adds more issuer-level expense, the multiple spread should be explicit.