Great Deals Are Made Before Launch

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In my opinion, sometimes the absolute best deals are usually made before launch, and they’re generally made in private, behind closed doors, with terms unavailable to the general public.

The sellers want to use the funds to pay back earlier investors, to fund growth expenses, or simply to line their pockets. The buyers want to get deals that won’t be available once the opportunity becomes publicly available, and they want to cut deals that leave room for huge profits down the road. Both the buyers and sellers take a risk in these deals, but they may work out well for both parties.

No, I am not referring to deals for gTLD domain names like the ones Frank Schilling and Mike Berkens made with .XXX or even the development deal  I made with the .CO Registry.

I am speaking about venture capital deals and angel investments made by firms in companies that are closely held and privately operated. VCs make big financial investments and gambles when they invest in a startup, and their hope is that the startup flourishes and allows them to profit from their stake. There are no guarantees an investment will work out, but they hope to invest in more winners than losers.

Similarly, as you may have guessed, domain investors have been able to make deals with domain registries to buy and/or develop premium domain names before they’re available to the general public. No guarantees are made with respect to making money on these investments, but domain investors take these risks to be in a good position should the TLD become used and valuable. Registries are able to use the cash to fund operations, and the investments are used per the terms of the agreement.

While some assail these “back door” deals, I personally have no problem with them. They involve private entities mitigating risk and making investments, and while the general public may not necessarily benefit, that’s business.

If you feel strongly about a particular extension/gTLD and can afford to make an investment, perhaps you should make the right contacts and try to work out a deal. While some of these types of deals aren’t publicly advertised (founders programs aside), they can be had simply by meeting the right people and making the right offer.

5 COMMENTS

  1. Elliott,

    This doesn’t really have to do with domains, but is there a angel-investor type site or mechanism where one can invest smaller sums (from $Xxx to $Xxxx) in start up companies?

    I’m thinking of something along the lines of kickstarter.com, but with the ability to invest (i.e. buy a piece) instead of just donating in exchange for merchandise, etc…

    I think there are some SEC rules against this type of investing, but I’m not sure.

    Anyway, if you or anyone knows of a place where one could do this, I would be very interested

    Thanks

  2. @AB

    Not to get too far off topic, but you might be able to find Meetup groups dedicated to this – in D.C., there’s one called Co-Founders Wanted, and Hackers and Hustlers. I’ve also come across forums where people post proposals looking for fundraisers or JV opportunities.

  3. among venture capitalist there as been an unspoken rule about not competing on the first investment in a new startup.
    thereby avoiding competition and letting the first venture investor take a larger share for a lower price.
    in exchange that first investor will let others follow and invest in the company if it sees sign on success and need of more capital.

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