Earlier today I wrote about the Gem rebrand and Gem.com deal. I think domain name financing options are underutilized. Perhaps it is because they are lesser known than other types of financing, but I think prospective buyers and sellers need to consider and/or offer financing options for domain names to get deals done.
Listed below are four types of deals that buyers or sellers might propose when a buyer can not or will not pay the full asking price up front:
Payment plan – An escrow service like Escrow.com offers buyers and sellers the option to pay for a domain name over a period of time. Some domain industry lawyers also offer this type of payment option, and some sellers will agree to this type of deal without a third party (much more risky for both parties). In addition, platforms and marketplaces like Undeveloped and Uniregistry also offer payment plans. If a buyer can not afford to pay $500,000 for a domain name up front, perhaps they can pay $100,000 a year for 5 years. The advantage for the buyer is that they can pay over a longer period of time. The advantage for the seller is they get a deal done and can keep the payments and the domain name if the seller does not make all of the payments or otherwise defaults.
Lease to Own – A domain name registrant may be willing to lease a domain name with a purchase option to buy the domain name. I believe Escrow.com or an attorney will be able to facilitate a deal like this. During the lease term, the buyer can pay the seller a monthly, quarterly, or annual fee, and the buyer can use the domain name. They can then buy the domain name in the future if they would like so they have control of the domain name and it is no longer owned by a third party.
Financing – Domain Capital offers buyers the opportunity to finance their domain name purchase. Unlike a payment plan, I do not believe the seller has to agree to the financing aspect and would not likely have anything to do with the financing aspect. The seller would be paid the full purchase price by the lender, and the lender would take possession of the domain name for the buyer to use. The buyer would work with the lender on the payment terms and responsibilities. Perhaps a VC or PE company that has invested in a startup would also offer to finance a purchase on behalf of the startup.
Purchase Option – This is not exactly a financing option, but by paying the registrant of a domain name a purchase option, the prospective buyer would have the opportunity to buy a domain name at a set price at a future date. I think a purchase option can be crafted in a way that helps both the buyer and the seller. For instance, the seller may be allowed to add language to sell for a higher offer if one is received and the buyer would receive some of that money if they do not agree to match that higher offer. It’s a bit complicated because a domain registrant would need to be trusted to not sell the domain name to someone else after agreeing to sell a purchase option, and a domain registrant would need to understand that they can’t liquidate a domain name if they sold an option. Obviously, this option would need to be worked on with an attorney and require both a trustworthy buyer and seller. I wrote about using an option to buy a domain name a few years ago.
Obviously there are drawbacks to each kind of deal. In addition, I think it is important to engage an attorney with domain name and IP experience when drafting an agreement or agreeing to any type of financing deal. There are things that can go wrong (UDRP, lawsuit, bankruptcy, death, damaged goodwill…etc.) and a lawyer should represent each party to ensure adequate protection.
I think financing options for domain names are underutilized. Perhaps it is because people do not know or think about them when buying a domain name, but I think they should consider them.
In an article like this, it should be noted that Escrow.com, Undeveloped, and Domain Capital are both advertisers. You can see their banners, but I want to make sure people understand that they are advertising even though they have no advance knowledge about this article.