I own a few domain names that receive acquisition interest from startups. I’ve always thought it would be neat to sell a domain name for cash plus an small interest in the company that is acquiring the name. If the company is hugely successful, the value of the domain name sale could soar.
After discussing quite a few deals that involved selling a domain name and receiving at least some of the consideration in equity, I have come to the conclusion that there are big issues for both parties.
From the sales perspective, selling a domain name for an equity stake requires the involvement of a good contract attorney that knows how to contractually protect the seller. I wouldn’t want to own an equity stake in an entity that turns out to be a worthless shell. I also don’t want my equity stake to be diluted nor do I want to be required to invest cash into the company, especially if the cash investment is substantial. Finally, I want to make sure I am protected if the startup fails or if the startup faces legal troubles. These are just a few items that need to be considered and negotiated in a deal that involves receiving equity.
Working with a lawyer can be