In the next two weeks, I will be acquiring a site for $400,000. Obviously, there are risks involved; the market for the services could collapse, a new competitor could spring up and take away traffic, or Google Could just give us the Flaming Finger and take away half the site’s traffic overnight.
Now, I’m confident we can continue to grow the site and there is great synergy with some of the other projects we work on. I like to think I know a thing or two about managing Google, so I’m not overly worried about the Search Engine traffic. The price we agreed on is very fair; not so cheap that it’s a steal and not so expensive that it doesn’t make sense.
$400,000 isn’t chump change for me . . . not yet anyway. For an acquisition like this, I like to mitigate some of the risk and preserve my cash position for future acquisitions. It’s also important to me not to give up equity if I don’t have to.
Enter our Mezzanine Financing Structure
We’re working with a private investor or two this week to loan money to buy the site using the domain and site revenue as collateral. While I will be taking over the operation of the site, I’m not personally guaranteeing the loan, so the rate has to be attractive to the Investors. Moreover, Investors like to see that I actually believe in the project and have some “skin in the game.”
So I’ll be putting up 20% of my money to buy the site: $80,000. The Investor puts up $320,000 and gets a monthly payment of $ 15,200 - $16,000 for 24 months depending on what rate we finally agree on; that’s a yield of 13%-18%.
With this Financing structure I’m happy because I don’t have to give up equity, I mitigated my risk and acquired the site.
The Investor is happy because he gets a great return on his money and doesn’t have the hassle of running a site.
The current site owner is happy because he gets a nice payday and is relieved of all the risk and responsibility associated with the site.
It’s the kind of deal you always want to craft: one where everyone wins.
