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Unbelievable, I did my first real estate deal today. I have generally always avoided this asset class as the ROI didn’t meet my criteria – buying a house at a 5% rental yield is and was a waste of money for me. That’s why I never bothered even to buy my own apartment to live in since renting made sense to me. But I finally found a way how to improve ROI significantly with blending in some development as well.
I bought an unused attic in an apartment building today, where me and my building partners will develop two pretty exclusive apartments with roof top terraces. I acquired two garages in the building as part of the deal as well. I paid around $260k to acquire the property. Redevelopment will take about 9 months and will cost around another $320k. So total cost around $580k. Then I plan roughly another 6-12 months for the apartments to sell for around $1.3 million. This kind of ROI suddenly makes sense to me, so I might do some more of this stuff in thefuture…
Sorry for not posting much lately. First two weeks of November I was too busy. Second two weeks I was depressed (manio-depression sucks). Last week I am hyper though again so back in work mode. Just wanted to give a little update on things I am working on and how things are going.
- Elephant Traffic – since I last posted about ET has grown tremendously, we are currently monetizing about 550k uniques a day, which is a very decent chunk of traffic. Our advertiser base is growing on a daily basis and on some domains we are peforming 10x better than parking. If you have high volume domains doing over 1k uniques a day, contact us, we can beet your current monetization by a big margin. We’ve also expanded the team and planning version 2.0 hopefully next week.
- Elephant Orchestra lead generation – Still growing very nicely, we are now doing $200k in revenue a month, however we do have some issues with profitability, so we need to work hard on our margins, 30% is not enough. We need to get it up to 40% next year and double revenue, then it will be a pretty nice business. We’ve added a lot of bluechip clients in the last two months such as the Czech Rep’s biggest bank etc, expanded into new verticals such as utilities and travel etc.
- Otherwise we continue to be chased by venture capital, we just had a meeting with a fund with over $11 billion under management, they seem to be pretty interested. Otherwise word is on the street that we are planning an IPO in Poland, funny we had Nasdaq OMX contact us as a result and pitching their exchange to us as a better option
- When it comes to my own domain portfolio, I’ve been selling off a little. I sold about 20k domains in the last two weeks alone. I don’t usually sell much, but this is probably the best time of the year to do so since ppc is high. Plan is to use the cash to deleverage a little, maybe build a little warchest for some nice acquisitions.
- I”m thinking of buying one multimillion domain at the moment, so I’ve been putting together the cash, arranging a little investor syndicate and raising some debt for it. We’ll see how it goes. Plan is, believe it or not, develop!
- Otherwise Rick Latona has a new venture called WatchBrokers.com, so I put some money into that along with my friend Ammar. Looks very promising. Basically it’s a cash4gold concept, but for luxury watches. And I also think Rick can pull it off.
- I’m also bankrolling a new start up that is playing around with some semantics, we want to build out a new news aggregation service that will have some advanced features such as sentiment, emerging story spotting, some hyperlocal features etc. More news soon.
- Otherwise my friend Ondrej Bartos finally launched his venture fund Credo Ventures, so I put in a million euros into that. Plan is to finance promissing Czech and regional IT/biotech companies. Somehow makes me feel a little bit good as well as it’s nice to plow some money back and help start-ups.
- Otherwise my facebook game development venture Viral Maniacs that I bankrolled didn’t go so well, so we had to lay off the whole gaming division, we will just be focusing on apps now. One big one coming hopefully still this year, gut feeling that it might be a killer. All is not yet lost hopefully.
- What has been absolutely hot hot hot is our online insurance broker ePojisteni.cz. We are now the biggest in the Czech Rep, doing about 4,500 car insurance contracts a month. Our staff has grown to 50 people there and is actually starting to be a bottleneck since we need more skilled phone brokers. Early next year we’ll launch a new site with more products and also run a big media campaign for around $1 mil. That should boost our dominance further.
- Otherwise I had to scratch plans for the wood pellet factory in Eastern Slovakia. Corruption there is terrible and I refused to give bribes. Nothing was simply possible there with stuffing somebodies pockets, so in the end we didn’t get the contract for wood etc.
- My lipousuction chain Slim & Go is a little shit now, a) it’s a bad season now and b) competition has gone up like crazy and everybody is discounting like hell. We opened a new one in Brno though and will open in Ceske Budejovice in january.
- What’s been really fun lately is this movie we are making together with a friend. We have a pretty decent budget for a Czech film, hired the mexican cameraman who did Amorres Perros, so shots look really good. I’ll hopefully have a little teaser in a few weeks, so will post it here.
- Also have plans to open a new small club in Prague, little bit of a freak show. I’m talking midgets, women in latex, men in wehrmacht uniforms, cyberpunk music etc. Will be fun hopefully. Still early stage idea at this point only.
- Otherwise the European Poker Tour is coming to Prague next week, so will be probably playing the main event or at least the heads up event. Have had a pretty sick run in poker in the last two weeks, up more than $40k, mostly in heads up cash games.
- As for my travel plans, I’ll probably show up at Affiliate Summit in Vegas and DomainFest in LA, so if you’re coming, let me know.
P.S. Keep it real!
About two months ago we picked up a nice little generic domain domain – leyton.com – on the drop for $1k. Our plan was to do a little development and we didn’t even bother parking it. Few days later we got an offer from a company which had Leyton in it’s name offering us 10k euro for it. We rejected the offer and made a higher counter-offer. The company’s response was to file an UDRP against us. Our lawyer on this, Stevan Liebermann, advised us that it is very likely we will lose the UDRP, so we were ready to take it to court if we lose. Fortunately Stevan wrote an amazing response to the UDRP and against all odds we won it. The story even had a happy end for us – we ended selling the domain for $50k to the company.
This is just a little story to illustrate how important it is to protect your property. It also is a big favour to the domaining community. Since the IP lobby is so strong, we as whole have to try to counterbalance it as much as we can.
Some things are irrational or absurd, without explanation. One of these things seems to be a complete lack of revenue data about domains on the various aftermarket platforms. Even though a domain’s parking revenue would strongly influence the selling price of a domain, nobody is even bothered with communicating this information to potential buyers who may be interested in bidding and revenue is a key factor for them. For some unknown reason potential buyers are forced to estimate and their accuracy determines their success. Buyers focused on traffic/revenue names on the various dropcatching platforms can strongly support this argument.
Domains that generate a constant stream of parking revenue are the most liquid part of the domain universe because most smart domain investors buy on yield, not on potential development potential, end-user resale value etc since these values are just hypothetical and speculative whereas yield=cashflow. There is always somebody who wants to buy yield. The people who have had the biggest success in this business focused on yield.
Cashflow domains generally sell in bulk portfolios for a given revenue multiple. Say you buy a portfolio o 1000 domains making $10k/month for a 5 year revenue multiple, so you pay $600k for it. You are buying/selling the revenue of the entire portfolio, you are not really looking at the individual domains.
This is where the opportunity in the aftermarket lies – If you would unbundle the portfolio and sell it by individual names, you might get a total of 7 years revenue, for example, for the entire portfolio. The reason being that certain people might see more value in certain names for which they are willing to pay more (because for example they have a better way to monetize the traffic). So somebody may be willing to pay a higher multiple for your travel traffic names, somebody for finance traffic names etc. Somebody may see development potential in the name. Somebody might assess the risk of the domain differently etc.
Somebody smart can quickly carve out this niche in the aftermarket and start focusing on revenue names and include detailed parking stats with every domain for sale. Buyers will then simply be bidding based on what revenue multiple they are willing to pay for the name, ideally in an auction format.
In a previous post about Bido, I said that I think Bido will have to fundamentally change its model to start making money. This is the direction I think it should go, because this is where potentially the money is and it is an unoccupied niche. Instead of focusing on names with predominantly speculative value that usually catch the eye of 1 or 2 bidders (as hard as you try), why not focus on revenue names where you are likely to get interest from tens of different bidders if you can create a liquid marketplace.
I really like destroying commonly held perceptions. So here’s another shot: The future of domaining doesn’t lie in domaining per se, but in finance. Finance is where the new domain fortunes will be made. Knowing the domain game won’t be enough to make you rich anymore.
Let’s look at the development of domaining from a slightly historical perspective. The first guys in the biz (such as Scott Day) saw the value of domains as brands, gateways to the internet, that should be valuable one day. That was their edge. Then guys like Frank Schilling and Kevin Ham came in that understood the value of type-in traffic and built their empires around that (banking on the assymetry of information – most people didn’t understand it). That was their edge. Then came the big tasters. Their edge (already understanding type-in traffic) was in technology, acquiring tasting data and seeing the opportunity that many did not see. From this “historical” point of view we can basically break this down into three evolutionary steps, let’s call it generations – that made a killing in the domain business.
So what is the fourth generation, the next evolutionary step? I believe it is going to be about combining domaining and modern day finance. That’s where the fourth generation domain fortunes will be created.
And that’s exactly where I think my edge is (not that I would want to put myself in the vanguard of this next generation ). You see, when I came into the domain business a little over two years ago, I saw it through a different lens than most people in the business. I simply saw domains as any other asset that creates a cashflow stream (predominantly from PPC). So there was a huge arbitrage opportunity.
This lied and still lies on the ability to raise debt for cheaper than the yield that a domain generates. Say you would buy a great generic for 10 years revenue for $1 million. The cashflow stream is hence $100k per year. Now if you have the ability to raise that amount in debt say at 6% p.a., servicing the debt is going to cost you $60k per year. So you get to pocket the difference (+you have the added benefit of the capital appreciation of the domains). Then you just need to find a way to scale this to make a lot of money. Obviously raising the debt against domains is very difficult so you really have to get creative.
Bringing in aspects of financial engineering is where the new fortunes in domaining are going to be created. However with the introduction of leverage, some fortunes may be also lost (that is the downside). So if you want to make a lot of money in domaining, stop reasearching just domains and look into how private equity works.
Lookig forward to hear your thoughts in the discussion.