Earlier today, I wrote an article sharing some thoughts about Zalmi Duchman’s Forbes article. In my opinion, the biggest takeaway was Duchman’s advice about being creative to find a deal that works for both parties. Creativity can go a long way in making a mutually beneficial deal happen.
I want to discuss a type of deal that could benefit a startup that needs a particular domain name and a domain name owner: a lease with a purchase option. Essentially this allows a company to pay a monthly fee to use a domain name, and at any point in time, they could purchase the domain name for an agreed upon price. I want to share some advantages of this type of deal for both parties:
Domain owner advantages:
- Guaranteed monthly income for as long as the lease is in effect
- Opportunity to sell a domain name for a fair price
- More money for a domain name over a period of time
- Company building some value on your domain name
- Lower upfront cost to secure the best domain name
- Ability to purchase a domain name for a set price prior to building value
- If business fails, there isn’t a sunk domain name cost
- Can sell the option to buy the domain name to someone else if desired
For this type of deal, the lease costs are not refundable in the event of a default. If the buyer doesn’t pay the purchase price and stops paying the lease fee, the owner will get the domain name back and keep all payments.
In order for this to be fair, the price of the domain name should be more than if the buyer is paying up front. There is an opportunity cost to the domain owner if the venture fails and damages the goodwill of the domain name. Further, the monthly lease cost should be enough to overcome the opportunity cost, but it shouldn’t be unaffordable. After all, it is a lease and not a lease to own type of deal where payments go to the purchase price.
With every domain name transaction, there is some risk. I would advise that a deal like this should go through Escrow.com or a third party attorney to administer. If the domain owner dies, goes bankrupt, has the domain name stolen, or something else happens, the domain name should be secure. This will protect both parties.
I have done this type of deal before, although I ended up getting the domain name back. I can’t complain because of how much income I earned during the lease term, but it was a bummer when the purchase price wouldn’t be realized and the monthly income stopped.
I invite you to share your thoughts on this type of creative deal.