Michael started buying domains and doing real estate before discovering that buying and selling websites was the most profitable thing he could be doing.
He has been working privately with investors and has now set up his first fund.
He bought his first site back in 2004/5 for $120 and sold it to a larger affiliate business for $2500.
He then started to purchase more sites for cashflow, moving into 4 figure purchases where he would improve the revenue and then look to flip.
This enabled him to look at this space in terms of deal making rather than just cashflow, around the time that Flippa launched.
Then one of his buyers was interested in buying up more websites and he ended up selling most of his portfolio to a single buyer, which was his first six figure sale around 2009/2010.
Michael was buying sites at the time for 8 months or 10 months revenue and he was able to sell as a bigger deal for 25x multiple!
Michael has a Flippa page showing 49 transactions totalling $445,960 (!) which is mainly selling.
Managing lead deal flow is one of the main things he is focussing on right now. The more deals you buy the more deal flow you get from seller referrals to others.
Michael is mainly buying and managing and has investors he is doing deals with.
In terms of buying sites there are 3 strategies to employ:
- Looking at deals and buying something cheap (below market) and then sell for a profit
- Create synergy – focus on a niche to get an advantage over other people in terms of lower cost to create content and get links and better rates from advertisers and affiliate programs. This would be building clusters of sites around a topic and look to exit as a portfolio.
- Multiples play – at the lower ranges that could be 10x monthly revenue or at the higher range buying up six and seven figure deals and then trying to sell to a bigger company or even look at public offerings and raise money on those markets at much higher multiples.
Once get to $5MM in annual revenue there are a number of private equity funds and even public companies that could offer a 10x multiple.
With investment deals, Michael is not looking to hold long term, rather is looking to fix up, improve and flip. The most risk comes from holding onto a website for a long time.
Just like any good investment you need to have a plan and know how long you will be holding before you purchase. He currently looks to buy one to two deals a month.
With the fund the intention is to buy sites, generate upside, sell them within a year and then return money back to investors.
The goal is to resell each website for a double after a year. For bigger deals, i.e. $500k, they may use a separate LLC, but for smaller sites in mid 5 figure ranges it’s easier to put them all together.
There will be a hard cap at around $2MM and Michael would put 10% of his own money in where equity would be proportional to what’s invested and profits would be split 50-50 once the original investment is returned.
The cashflow (profit) is also split 50-50 for the cost of managing the sites.
If you’re interested about Michael’s fund check out DomainMagnate.
And thanks to DFYLinks.com for sponsoring this episode.