You won't see royalties until the game's made back its original development cost, which could take anywhere from a week to a month to a year to never. So, unless they offered their employees "potential future salaries based on potential future royalties," I'm guessing it would be hard to fund an entire team without revenue.
I have no inside knowledge of Iron Lore, but if you get $5 million to make a game, you spend $5 million (or more) to make it. And while your $5 million game is wrapping up, you need to get another game signed and hope the first milestone payment or signing bonus covers the salaries of the people you're carrying over to the new project; the publisher doesn't throw all the money at you right away.
And if there's any delay between finishing one game and signing the next one, well... you're running in the red. This is why it's really hard to be an independent with a single team. You almost need to have, at a minimum, two projects running a year apart so they never overlap.