from websites to twitter @ handles, and a host of other purely digital properties that are bought and sold on a daily basis -- domains have become their own asset class.  

some people collect domains like their stocking a wine cellar, while others are simply looking for the right place to hang out a shingle.  for entrepreneurs, sometimes we start out in a fixer-upper… starting our domain with “get” or slapping a non “.com” tld at the end.  e.g. my friends at prime are currently rocking the stayinyourprime.com url -- but i’m sure it won’t be long until they own prime.com.

with any luck, we all move on up to the east side with a beautiful domain and matching twitter handle, but getting there takes time, money, and some creative negotiation.

having been a part of a number of such transactions, and advised numerous others, i wanted to document my latest thinking on how to structure such deals.  

note, i’ll use the term ‘domain’ to include twitter @ usernames, websites, and the like.  and yes, we all know that you can’t really buy twitter @’s, but you can “buy” them through consulting-type deals.  and as with any of these transactions -- whether strictly allowed by t&c’s or not, creativity and openness can create win-win deals for buying and selling domain assets.  the key is to be honest, especially with yourself, about what you are giving up and what you are receiving in return.

 

1) assess the value of your domain

whether a domain hoarder (collector), or starting a real business -- it’s natural to think that you just scored a domain worth well more that you paid…  people have told me i owned $20k domains, but until you have a real offer, so what?  it’s just a made up number, like an appraisal on a house no one wants to buy.

have you built up seo?  does your site generate regular traffic?  do you have a mass of engaged followers?  is their innate value in your domain (i.e. it’s short, pronounceable, and at least close to a real word)?

in short, what is the buyer getting besides just the domain?  if something, document it.  if not, realize it.

 

2) how does your value translate to the prospective buyer

mba classes will talk about batna -- the best alternative to a negotiated agreement.  basically, if the buyer doesn’t get your domain, what are her options?

can he just allocate that money to buying keywords and siphon the traffic?  does she already have a backup domain, or is it mission critical / strategic?

knowing and preparing for this will help both sides come to an equitable deal.

 

3) win / win

if you’re honest about #1 and #2, then a true win / win deal isn’t unheard of.  with creative deal making, both sides can get what they want.  

i saw a great example recently with opendoor, the real-estate startup that just raised $10 million from everyone.  at the bottom of their site, you’ll notice a link  that says “looking for opendoor networks” -- which takes you to a site lovingly coded in html circa 1999.

keith rabois or opendoor can comment on the specifics, but my guess is they came to an agreement with the former owner of opendoor.com where they not only exchanged cash, but also tried to offset any lost traffic with a link to opendoor networks, which can now be found at opendoor.biz.  in all likelihood, opendoor networks has never had more traffic.

which leads to my last point…

 

4) schmuck insurance

no one wants to sell a domain that turns out to be worth billions.  

sometimes you know with whom you’re negotiating… e.g. if you owned delicious.com and someone came knocking -- chances are it was the startup del.icio.us.

but many times you don’t… such as the guy who sold uber.com to the now $17 billion and counting company.

to combat this, think about terms to give upside to the buyer, or at least limit the downside.

on the downside, maybe you sell the domain for less than “face value”, but with a balloon payment or clawback in x years -- where you can get the domain back if the buyer doesn’t make it.  chances are he won’t.

on the upside, think about equity as a way to align interests and give the seller option value should you take her domain and turn it into billions.  missing a point on your cap table won’t matter if you’re hugely successful, but it could make getting that elusive domain that much easier.

curious to hear your thoughts on ways that you have structured domain transactions, as well as any other resources that you want to share.

one of my favorites is the affectionate domain snob jason calacanis on twist.



Posted
Authorjonathan hegranes