I think a dream scenario for a domain investor is selling a domain name to a startup, getting some equity in that startup as part of the deal, having that company turn into a billion dollar unicorn, and selling the stock for many millions of dollars. This doesn’t happen very often. For the vast majority of startups that buy domain names, giving up equity at an early stage is too big of an ask. I want to share an idea I have when a startup will not give up any equity in a deal to buy a domain name.
When negotiating with a startup that will not offer equity to me but has a strong enough cash offer to make a deal work, I can ask for one concession I believe is a win for both parties: The option to invest in their friends and family funding round and/or their seed funding round.
This would be a win for me because I have the chance to invest in a startup at a very early stage. Once they have their domain name and begin operations, I will be able to have a look through their business plan and decide whether an investment in the company is right for me. I do not have an obligation to invest, but I have an option depending on whether or not I like what I see.
This would be a win for the startup because they are not giving up equity at such an early stage, and they would take on my investment in the same way they would take on an investment from friends and family in the future or in a seed round with other investors. Essentially, they are granting me the same rights they would grant to others in exchange for a cash investment should I opt to exercise this option. It costs them nothing at the time of purchase, and what they offer me they would offer to others anyway. If the business never seeks funding, it would not impact them.
It is important to reiterate that the cash aspect of the deal must be good enough to move forward on its own before agreeing to a deal. I would not depend on the investment option to make the deal worthwhile. Notably, a contingency like this should be memorialized as part of the purchase agreement.
Having this option gives me some potential for upside in the deal. It also eliminates some of the concern about seller’s regret.