Startup Offering Stock Options for Domain

[krx]

I am in negotiations with a startup company for a domain name I own. I told them my ballpark price (lowish xx,xxx) and they have come back with an offer of cash and stock options. These guys know what they're doing and the project they're working on could be huge. They recently sold their previous company for $200 million. But obviously there are no guarantees.

I know very little about start ups and stock options. The advice I've heard is you should assume they're worthless and be pleasantly surprised if it turns out otherwise. I'd be interested in how others would value options in a deal like this.

 

[bulkdomainz]

How close is the cash they are offering to the cash you wanted? You need to decide whether you are willing to risk the cash difference as stock option!

 

[krx]

It's about 50-50. They also suggested a lease-to-own deal where I get my full price in two pmts, one now and one in a year, no options. I don't need it all now so that would be fine. I'm just not sure I want to give up the options given that they could multiply my income 5 or 10 fold.

 

[Jason.tv]

Check the financials of the stock, the stock could be on the pink sheets trading at .001 and will never be worth anything. They could be using the stock funds as payments to employees and development which means they don't have any money themselves.

At least they are offering you hard cash, if the cash is great enough value then take it; moreover, if they are not a penny stock and is publicly traded then this is a great investment! go for it!!

thanks,

Jason

 

[krx]

I don't believe it's publicly traded.

 

[DU]

Depends on the relative amount of stock (how many are they Authorized to issue and how many are they issuing and what's the par value - one would assume $0 to remove liability) - do they have buyback program? will they allow you to sell it? Are they incorporated or not - i.e. have any capitalized value? ...

It depends on how much you need the money and how much you like to gamble.. it might be worth it just for fun... nothing VENTURED nothing GAINED.

Do you have an accountant?

 

[cache]

find out who is their vc, what % you are owning the company, what is the valuations of the company. keep in mind your shares can be diluted later.

 

[interestedenough]

Cache has the best consideration regarding what you are being offered.

If they are offering you stock options, they might be similar to those that employees get. If you are given stocks directly, you should get at least the deal that the VC's or FFF's (friends, family & fools) got in their last round of investment (same valuation, etc.).

find out who is their vc, what % you are owning the company, what is the valuations of the company. keep in mind your shares can be diluted later.

 

[krx]

Thanks for the feedback. Is there an online source that will give me a better understanding of all this?

He did mention that they were paying interns and employees in options. I also saw a report that they raised $3 million from VC last year.

 

[RazorNF]

You never know...

http://abcnews.go.com/blogs/busines...iti-artist-david-choe-into-multi-millionaire/

 

[bmugford]

They recently sold their previous company for $200 million.

Then why don't they have low $XX,XXX to pay for a domain name?

Whatever cash you get now is probably what you will get. The vast majority of new companies fail, and the stock options will become worthless.

Brad

 

[alien51]

I don't believe it's publicly traded.

If it is not publicly traded, then how can you convert it to cash by the time you need cash? You cannot buy a Lexus using stock options.

Remember that if you are holding a privately-held shares, the company is not obliged to pay you premium price if you want to sell those shares back to them. So how will your shares rise in value?

For startup companies, paying you stock options is like giving you a "promisory note" on paper. It is very convenient, because in case the company folds-up, they are not obliged to pay you anything. Your stock options will be garbage. Promises are made to be broken, that is why it's convenient.

What are the chances this company will do an IPO? Evenif it did, it's no guarantee it will rocket by 4 times the value like what you dream of. And besides, i don't know why they need to do 2-payments for your domain for a mere $ xx,xxx dollars.

I'll go for sure-ball cash. And besides, if you know how to play the stock market, you can trade shares of other publicly traded stocks.

 

[Kate]

Then why don't they have low $XX,XXX to pay for a domain name?

Good question. As stupid as it may seem, even the large corporations don't always have healthy budgets to buy domains. Domainers always have great expectations but even rich corporations don't have infinite budgets, whatever the purpose.
That's what they offer 'promisory' paper - it doesn't cost them anything :gl:
But the dollar is fiat currency too :blink:

If it is not publicly traded, then how can you convert it to cash by the time you need cash? You cannot buy a Lexus using stock options.

Agreed.

 

[DubDubDubDot]

They recently sold their previous company for $200 million.

What percent of the company are they offering you for the domain? Me personally, I'd be looking for a minimum of 0.5%.

This is quite common for startups. They can't afford to pay anyone, so they offer ownership shares instead. Then if the company gets sold, the bargain workers get their payoff. The Instagram employees got about $7.5 Million each.

So if they sell for $10 Million and you got 0.5% for the domain, you would receive $50,000. If you got 1% for the domain and they repeat their $200 Million success, you get $2 Million.

 

[johname]

Do you even know what this "start up" does? How it makes money? Why its going to be better than its competitors? Right now a great time to bandy about "paper" as everyone has read about the killing early investor made off of Facebook (which is why getting in before publicly traded is a good thing)

The purchase of a domain name is a basic step in the budget of a web based startup, they have the money set aside, there just seeing if you will take their paper to ease the short term pain.

Is the name priced at low xx,xxx because that's what you want for it or is it clearly a five fig name?

If you like their concept/plan/business, being a partner in the enterprise might be a lot more appealing than holding a name that you might have to wait for another decade before getting a similar dollar offer.

 

[krx]

Then why don't they have low $XX,XXX to pay for a domain name?

Brad

I had the same question. I think it is for a couple reasons. One, the players involved in the first company were a revolving set. A couple guys found something, it morphs into something else, one leaves one stays, they take on a ceo from somewhere else, bring in employees, etc. Everybody was involved and owns a piece of it and cashes in on the sale. But then it starts over again with a couple of the same guys, a new idea, a different company, a new ceo, employees, etc. The guy I'm dealing with founded the first one and the second one. He probably did ok on the sale even tho he opted out before the sale. But I don't think these guys want to jeopardize their own assets. They're spending investor capital.

---------- Post added at 09:56 PM ---------- Previous post was at 09:44 PM ----------

Do you even know what this "start up" does? How it makes money? Why its going to be better than its competitors? Right now a great time to bandy about "paper" as everyone has read about the killing early investor made off of Facebook (which is why getting in before publicly traded is a good thing)

The purchase of a domain name is a basic step in the budget of a web based startup, they have the money set aside, there just seeing if you will take their paper to ease the short term pain.

Is the name priced at low xx,xxx because that's what you want for it or is it clearly a five fig name?

If you like their concept/plan/business, being a partner in the enterprise might be a lot more appealing than holding a name that you might have to wait for another decade before getting a similar dollar offer.

Yes I know what they're doing. It's the kind of idea that you think must have been done already it's so obvious. But it hasn't and they're doing it. I do like the idea of being a partner in it but I need to get a sense of how to value the options. Is it a one-to-one equation, ie, $10,000 of stock options = $10,000 cash, or do you figure the options at a certain percentage of dollar value?

 

[alien51]

I need to get a sense of how to value the options. Is it a one-to-one equation, ie, $10,000 of stock options = $10,000 cash, or do you figure the options at a certain percentage of dollar value?

You need someone to put a price tag on the company business, divide it by the number of shares distributed among shareholders. Usually, the owner of the company will give substantial shares to people who "invest money" into their business.

You are not giving them money. You are selling them something. If they pay you with cash, it will be written off as an expense in their books. If they pay you with stock options, they pay you nothing.

How will you get paid in the future?

I think you are banking on the idea that this company was designed to be sold to someone else, somehow. How soon will that happen? You are not even sure what the terms of the sale would be.

People are always using Facebook-Instagram as an example. But how frequent does that happen, compared to startups that went kaput?

 

[Aggro]

LOL Hilarious

Listening to the posters here is like listening to dumb & dumber...

-------------------------
How many share options are they proposing?

Is it 1 option:1 ordinary share?

-------------------------
FInd out the issued no. of ordinary shares = ORIG

FInd out the current theoretical share price: OP = 3,000,000/ORIG

Find out number of new shares to be issued (from all share options) = N

What is the strike (issue) price of new shares = IP

Theoretical Diluted Price per share = ((ORIG x OP) +(N x IP)) / (ORIG + N)
--------------------------

But the value of current ord shares can quickly change with future funding rounds where valuations are higher..

In any case, you need to think like a VC & take a view based on the chances of a trade sale, if not IPO (very unlikely outside a few star startups).
Chances of a trade sale to a competitor are far higher.
Current valuation is $3 Million.
So VCs would be looking at a multiple of this to be happy selling.
Ultimately, even $10+ Million sale of a startup is chump change to established cos, if the startup has people and/or technology that they want.
(sums that domainers can't/don't even dream about in their wildest dreams. LOL)

In other words, betting on the chance of a sale so that your options are "in the money"

Clearly they have a bunch of people working for them paid on cash/stock options - so it can't be that bad.

Plus the founders have something most domainers will never have - a track record of success.
Which VCs look on favorably as a marker of future success.

What field is this startup in?
If internet, what services are they providing?

Anyway, I think the sums of money we are talking about are not that high.
IMO you should take a punt.

I've said it before, nothing happens until the entrepreneur comes up with the big idea:
"Entrepreneurs make it happen, domainers wait 'til the entrepreneur makes it happen"

:bingo:

:loveyou:

ps. Feel free to PM me with queries

 

[DU]

LOL Hilarious

Listening to the posters here is like listening to dumb & dumber...

For the record.

1) I was here first - who's stalking who, nutsac?
2) Dumb & Dumber & You

What is your contribution?

You copied the "Value dilution" section of "Stock Dilution" wikipedia entry... well aren't we clever.

 

[URLtrader]

Would they do Revenue share with you ? That could be a win-win situation for both parties.