Fred Wilson is one of the most well known and successful venture capitalists, and he is currently a partner at Union Square Ventures in New York City. Some of the best known investments his company has made include Foursquare, Etsy, Meetup, Zynga, and Twitter, among many others.
On Wilson’s blog today, he discusses domain names and their importance to a startup. Although a domain name is not on “The 10 Golden Principles for Successful Web Apps” he wrote, he believes it’s something that could be listed.
In the article, Wilson makes an interesting observation about prices of domain names:
“We’ve noticed the average price of a good domain has risen fairly dramatically in the past year. We used to advise companies to spend $10k or less on a domain, then we upped that recommendation to $25k. We recently upped it again to $50k. I suspect domain prices and pre-money valuations of newly launched startups are highly corrrelated <sic>.”
If a startup builds its brand on a confusing domain name, they are actually building value on someone else’s domain name. For instance, when Del.icio.us was launched, it made the already valuable Delicious.com even more valuable (and expensive) due to the lost traffic and likely revenue generation for the previous owner. Had the startup bought Delicious.com earlier, the cost would likely have been significantly less, although it still may have made a big dent in its budget.
For domain owners who own a name coveted by a startup, they should realize that perhaps taking equity in a company is a good idea in addition to the cash. This is especially true when a startup is backed by a guy like Fred Wilson or his team at Union Square Ventures.
Perhaps if more startups are upfront about who they are and what their plans are, domain owners would be more amenable to working out mutually beneficial deals. In fact, here’s a piece of advice for operators of startup companies looking to get a good domain name without spending a lot of cash up front: telling a domain owner you’re a poor student or a single mom trying to buy a domain name doesn’t work).
Whether you’re a domain investor or you are operating a vc-funded startup, Wilson’s article is a good one to read.
Many times, 50K won’t get you much.
It would certainly get them TropicalBirds.com 🙂
biz model is the key
no good biz model
the best name in the world means nothing
look at schwartz and property.com or is it properties.com
no biz model
1M+ name and he has NO CLUE
names mean little without the right biz model
Perhaps more often than not it goes like this:
“This whole exercise in finding and buying a domain is a huge pain in the rear. I’ve seen startups spend endless hours on it. It is an important issue, particularly for consumer web startups, and it is worth getting it right. But there is also a limit to how much time and money you want to spend on this effort. Remember that a name is what you inject into it over time. So don’t let getting the perfect name be the enemy of getting a really good one.”
Fred Wilson nailed it. Dozens of online tech companies get infused with millions of dollars every day (see his blog and other tech blogs), and almost every single one makes sure to get a quality .COM. It has become standard for even the newer startups, which is great for real domainers. Good to see a successful VC understand the .COM branding value.
I think you would be hard pressed to get equity in a site of Fred Wilson’s caliber. He’s just going to give you the cash.
You are probably right, but just because he’s involved doesn’t mean they have an endless supply of cash. There’s less risk for him if he gives equity – even a tiny amount.
Are such buys commonly under non-disclosure? (DNJournal, for example, reported so far this year less than a hundred sales in the price range mentioned above).
Nice to have good websites and good dot com but if people got no money to buy, then it is useless.
it is like window shopping
Pretty interesting advice, and probably correct, but he sort of assumes we’re talking about generic keyword domains, doesn’t he, Elliot? I mean, for example, Zynga – that’s a made up word. What are the chances someone has Zynga 5 or so years ago? Maybe it is taken, and can be had relatively cheaply, maybe it’s freely available. I think the point is from a branding perspective, it depends on what route you want to take: either you go generic to pull natural search traffic, or you go fanciful and try to build up recognition for the new brand that way. The first way is probably easier to do in the short term, but costs more, while the other way takes much longer to do, but costs less up front. In the end though, accounting for time, it may be a wash.
Getting equity reminds me a little of the people on the show shark tank who sell a percentage of ownership. There is nothing to prevent a deal from being renegotiated later (ref: Trump, ref: entertainment contracts, ref: sports contracts). Any deal is subject to renegotiation later depending on how circumstances change. And I won’t even get into the granularity of what “1%” of something could even mean (dilution etc.)
How about “I now I said you could retain 35% of your little company but now you need more money and I need more equity” or go to a bank..
And by “renegotiation” I don’t mean the contract isn’t valid. I mean one party bluffs or convinces the other party that it is in their best interest to change the deal for some reason real or not real.
If things were so clear cut you wouldn’t find lawsuits with big verdicts being settled for smaller amounts of money as another example.
Larry is right. For every Facebook or Google where even 0.02% will make you rich you have 1000 companies that go bellyup or are worth next to nothing.
Richard Lau had a good chat about creative deals he’s done here http://www2.webmasterradio.fm/domain-masters/2010/making-big-domain-deals
The only thing that matters today is a proven good business model. The days of raising money over a ‘good name’ are long gone. If you can’t show real income with a new proven business model, the name MEANS NOTHING.
Fred misses the mark. Etsy and zynga are dumb names when compared to handmade.com or games.com . The name zynga isn’t making them any money, farmville is…a natural language domain. Would farmville have the same growth if it was called fynga? Would facebook be the same company today if it was called fynga? Fred underestimates the value of natural language properties.
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