The 90 Days I Asked For

I have been in the space long enough to know that CPC, search volume and market caps are not the only sources of information that I have to gather to determine the business viability of a domain.

I wrote that to a domain broker on 7 June 2019. It was the most important line in a negotiation that had been running since March.

The asking price

The domain was a one-word .com for a consumer product category, the kind of name brokers call a category killer. When I first asked what it was going for, the answer was that they were entertaining seven-figure offers. I asked for their best number. It came back at $3 million, with a list of comparable sales.

I passed.

A month later the broker came back: the seller had lowered the reserve. I asked for the liquidation price and promised a yes or no within minutes of getting it. The number was $895,000. I offered $500,000 and said I would close at that. The broker said it was too low. A week later she told me another party was interested; I told her 500 was my max and to come back if anything changed.

They came back with $500,000 down and the remaining $395,000 financed over 30 months at zero interest. I passed again, for now.

The term that mattered

In early June I reopened it, and this time I led with a different question. Would the seller give me a 90-day due diligence period?

I was prepared to move on price for it. I asked about 90 days at $600,000, and then at the full $895,000 with $500,000 down and the rest in payments. The broker’s view was that there was nothing to do due diligence on. The domain was clean, the transfer would go through escrow, and the longest inspection period she had ever seen was five days. The seller offered to lease me the name for 90 days at $25,000 a month instead.

My answer was the email above. The rest of it read:

It will take a team of 1-2 people to make calls, send emails for approximately 2-3 months to determine if we have the bites necessary to determine the business viability. This really is no different than purchasing real estate; I have to make sure everything passes the smell test, before closing on the property. To me virtual real estate is no different.

I would accept the payment terms if he would accept a no-cost 90-day due diligence period. If not, I would respectfully walk away.

The next day the purchase agreement arrived with the terms I had asked for. The down payment was not due until September.

What the 90 days were for

The broker and I were talking about two different kinds of due diligence. Hers was about the asset: was the name clean, could it be transferred, did the comparables support the price. Mine was about the business: if my team spent two or three months making calls and sending emails, would we get enough bites to pay back $895,000?

Search volume, CPC and comparable sales answer the first question well. They say almost nothing about the second. That is why the free window was worth more to me than another $100,000 off the price.

How it ended

The first internal read on the agreement was blunt. It was a very pricey domain, and the search data did not show that kind of value. I asked for the wording to be double- and triple-checked: if I backed out within the 90 days, was I liable for anything?

I never signed. In July I told the broker that if she had another buyer, she could certainly sell it. She followed up in August, in November and again in January. I did not buy it.

The asking price came down from $3 million to $895,000 in less than two months. The 90 days were the one term I was not prepared to give up.

Related: Diligence That Ends in No and The Clause About Leaving.