Why You Should Invest in Web Properties

Investing in websites

If I could show you how to get a 25%+ annual return on investment, would you be interested?

If you could have control over the performance of that investment, would you be interested?

Of course you would!

Please forgive the sales tactics — I had to get your attention.

I discovered a new alternative investment when I started working with Latona;s Web property brokerage. Let me just reveal that I am working in the capacity of a business analyst for Latona’s — I am not a sales rep. However, I get to look at each website that is listed by the company. I get to ask the probing questions. I get to view all the weaknesses and identify the opportunities.

And I am impressed by the potential websites have as investments.

Here are some things you need to know:

  1. Many websites make their money primarily from the advertising displayed on the site. Yes, you know websites have advertising, but did you realize how much money?
    1. I recently worked with one site that had advertising revenues of more than $1 million with approximately $800,000 left over after expenses. The site attracts more than 1 million unique visitors each month and has been chugging along very profitably for nearly 2 decades.
    2. Average sites that attract 1,000+ unique visitors monthly often earn $50,000 to $100,000+ annually with expenses lower than 10%
  2. Most websites sell for between 2X revenues and 4X EBITDA.
    1. That means your investment can pay off in 2 to 4 years, if you just maintain the status quo.
    2. Most of these Web properties can be improved to increase traffic and advertising revenues.
  3. There is a growing population of venture investors who are investing in and improving Web properties — and they are making big money.
    1. The investment benefits of Web properties has not been recognized by the mainstream — yet.
    2. The investors operate portfolios of Web properties, keeping some for revenue, improving others and then selling them at higher prices.
    3. Investors either outsource management to inexpensive offshore companies that do excellent work, or they maintain an in-house management team — usually fewer than 5 contractors for the biggest portfolios.
  4. Online advertising is growing.
    1. Here is the headline from the IAB’s October 2014 press release announcing the results of the first half 2014:

      Digital Ad Revenues Hit Landmark High in First Half — High of 2014, Surging to $23.1 Billion, According to IAB Internet Advertising Revenue Report — Mobile Jumps 76% Year-over-Year & Overtakes Banner Ads

Yes, there are caveats. Working with a reputable Web property brokerage and doing your due diligence is, as you would with any venture investment, is the best way to protect your money.

Financing is often available, but the process of buying a Web property is negotiable. Often the current owners will accept payments over time. The asking price is negotiable. The terms are negotiable.

This is a young investment marketplace, which means that there are plenty of opportunities! As mainstream investors continue to seek alternatives to bonds and stocks, they will eventually find Web properties. When that happens, these properties will become more expensive.

If you have questions about investing in Web properties, or selling your developed website, please feel free to contact me through LinkedIn.

Advertisements

Hedge Funds Liquidating but Retail is Buying

A solemn crowd gathers outside the Stock Excha...

A solemn crowd gathers outside the Stock Exchange after the crash. 1929. (Photo credit: Wikipedia)

This is something that I have been talking about recently. It is a sign that:

[1] portfolio managers are taking their profits early so they can post good results at the end of the year

[2] the professionals are moderating their stock market positions because they see trouble ahead while the retail buyers are jumping in out of greedy desire to make a lot of money in what they think will be a continued rally — a ‘slam dunk‘ attitude — a legendary bad sign …

BofA Merrill Lynch equity strategists report data on what their clients are doing in the U.S. stock market on a weekly basis.

Last week, BAML’s hedge fund clients unloaded the most stock since 2008, while institutions and retail clients were net buyers.

 
Something strange is happening in the economy and the stock market. I remember the words of my first Wall Street boss, William K. Beckers — one of the big Wall Street names back in the 1920s and beyond. He was the floor broker on the NYSE for Spencer Trask & Co. and watched Morgan, Giannini and other leaders of banking and industry come on to the floor, buying to support their stock prices. In his office he had framed a fading piece of ticker tape that read the volume and “October 29, 1929 Good Night” 
 
He always said about the 1929 market crash: we all knew something was happening, we just didn’t know what it was going to be.
 
In the 40+ years that I have been watching the economy, the equities markets and the fixed-income markets, I have never seen anything that compares to what is happening now. I confess I don’t know what is going to happen, but things have reached a point where it is clear there is something on the horizon. We will find out what it is, and it doesn’t appear likely to make life any easier for anyone.
 
Again, as you plan for next year, consider some contingency planning.

Startup networking for INVESTORS …. Really?

I have been playing with some questions this past week. The biggest question I have regards networking: Why do startups seem to network with each other? Is it because they don’t know how to network outside the startup community? Or is it because they think they will find an investor at startup networking functions?

I believe that existing businesses that could hire startups don’t know how to find startups to hire. I have rarely met a person from an existing business looking for a product to buy at a startup networking event. Existing businesses are not plugged into the startup community. They just aren’t.

I spent a lot of time in the Southern California venture community and have been spending a lot of time in the Portland Oregon startup community. One thing I have learned is that most startups could have a product to sell but are focused on getting venture funding rather than getting customers. There seems to be a belief that spending the time to find an angel investor or a venture capital fund is time and effort well-spent. I am not so sure.

Face it: Getting someone to plunk down $2,000,000, $200,000 or even $20,000 is a huge and often disappointing task.

Venture investors want to see proof that your business idea is likely to create profits. To create those profits, you need to do business with customers.

Revenues should be your primary concern. Most investors are people who understand how difficult it is to start a business because they either got their money by starting their own businesses or have run businesses for other people. They respect an entrepreneur who knows that revenues are the first order of business.

Your second concern is controlling your expenses. If you can bring in revenues and control your expenses, venture investors will be most impressed. However, if you can do those things, you won’t have such a need for venture investors.

I attend a lot of startup networking events and hear a lot of lofty goals that require million$ to implement. What I rarely hear is how startups have a modest first-step revenue-producing product, which will bring in money for the development of the lofty goals.

When you network with other startups you are spending your time with people who don’t have any money to give you.

Networking with existing businesses, however, puts you in front of people who just might become customers. Not only that, the owners of those businesses might like your product enough to invest in your company.

The beginning of something great

I have  been a little remiss in writing my  blog in the last few days. You see, I have been thinking of the economy. I wanted to say something about the economy and how it might affect next year.
 
I didn’t quite know what to say, exactly.
 
We all know the economy is … well … difficult. At best. In fact, we all know next year is not looking particularly good. I am expecting more of the same. I am worried about another financial crisis like 2008 – a serious possibility. So I started to think instead of how we are going to recover from the current bad economy – for surely we will.
 
Most people walking around Main Street don’t even notice what is going on underneath the surface of daily life. It is a slow quiet rumble that only exists in a confined area. It consists of a handful of two year old companies, some mind-bending technology floating around and a crowd of very bright people who are building their own companies.
 
This quietly growing part of our economy is how we will launch into the next period of prosperity – a recovery that will make the 1990’s popularization of the Internet and digital technology look tame. It’s just starting to cook in the entrepreneurial community today, but this time, it is very different from the entrepreneur-explosion in the ’90s. For one thing, the entrepreneurs are not all young. They range from 20-ish to the-new-70. You have the brilliant young visionaries and the brilliant experienced visionaries (who have been there done that with the vision thing). The combination results in much more viable business models than I have seen yet from startups.
 
I am really looking forward to the next few years because of what I am seeing in the planning stages, today.
 
Another difference is the ability to create new technology at a reasonable cost.
 
However, the best part is the prevalence of willingness to forgo the venture capital path by starting modestly and building upon successes. This is how very strong companies start. Of course, everyone wants $50 million if it’s offered, but there is a realization that may not be the best way to build a successful enterprise.
 
I think the long periods of mass unemployment have helped to change our entrepreneurial culture from the cocktail napkin business plan, Aeron chairs and Frank Gehry buildings of the 1990s to careful planning and thrifty ways. I think today’s entrepreneur looked at the employment opportunities available and decided to set out to pioneer a new career as an entrepreneur. Bravo.        
 

Your Seed Round is not your first funding

I find I am running into the same conversation over and over again with entrepreneurs. I am not sure why, but I know its source: wishful thinking.

Let me just be clear about this, wishful thinking is an important part of the entrepreneur personality. It is what drives us all to do things that our friends and family think are crazy. Nevertheless, properly applied, wishful thinking creates great companies.

Here is the problem: You are highly unlikely to get funding, strategic partners or advisers if you don’t have any skin in the game.

All the work you do at the drawing board putting your idea together and all the work you do running around taking meetings and making contacts is worth very little in the eyes of investors, strategic partners, advisers and even attorneys, accountants and other service providers if you don’t have any of your own money in the project or money invested by your friends and family.

The reasoning behind reluctance to work with startups with no FFF (Friends, Family & Fools) money is the perception that the entrepreneur has no moral commitment to making the project work. So many entrepreneurs simply lose interest, get hired somewhere or get too discouraged to proceed. No investor or strategic partner wants to take on that risk. The thinking is that, if you have taken money from the people closest to you, there is a great personal incentive to stick with the project and somehow make it work. It also gives the impression that the people who really know you don’t think you are a good investment – so why would an outsider think you are a good investment.

I know now-successful entrepreneurs who lost their houses, wives, cars, friends and made their families very unhappy while building their companies. They believed so strongly that their ideas were bound for success that they begged, made promises and did anything else they could to get money to develop those ideas until they could get seed funding.

Your seed round is not your first funding.

Your Friends & Family round is your recommendation to Seed Round investors. It looks bad if you can’t get anyone who knows you to invest a few thousand dollars in your business idea. Often, these people also want to see that you have sacrificed your lifestyle and savings to build your company.

Set aside your pride and get out there begging your family and friends for money. It doesn’t have to be much money – some can only afford a few hundred dollars. A thousand dollars is good. Five thousand or more, fantastic! That money allows you do hire consultants, attorneys, accountants, take trips, build prototypes and anything you need to do to prove your concept and prove your willingness to take your idea all the way.

If you are not willing to hit up friends and family, or if they all smile and politely decline, it is time to re-consider the wisdom of your idea and the impression you are making on the people around you.