The Psychology of a Multi-Million Dollar Sale (Bored.com)
In January 2008 I sold Bored.com and 170 related sites for $4.5 million. This represented over half of my company (I still have 200+ smaller sites and 9000 domain names), and the vast majority of my profits. Bored.com was easy to run, had 10 years of steady growth, and there was little risk that the income would ever go down. So, why did I sell?
The main reason I sold was so that all my wealth would not just be virtual. Having paper profits is great, but there is nothing like having lots of money in the bank. If the Internet keeps going up, I still have a big business that will keep going up in value. If everything crashes, at least I will still always have enough money to live on.
That is the short version of the story, but there was really much more to it. Over the years I had received some lowball offers for Bored.com, but never really considered selling it because it made a huge amount of money ($35,000/month profit), was not hard to manage, and kept growing year after year. On the other hand, I had spent the past 13 years working 7 days a week to build up my company, with the constant pressure of dealing with hundreds of emails and phone calls each day, and worrying about things like server crashes, payroll, accounting, potential lawsuits, bills, and taxes. I could not let anything slip through the cracks because it could have led to the downfall of Bored.com, so it was a lot of pressure.
In 2006 I got a multi-million dollar offer for Bored.com from a buyer who had bought some domains from me in the past (through a broker), but the problem was he wanted me to finance much of the purchase price, and in addition he needed to first sell one of his big domains to raise the cash, and I had doubts if that would happen as easily as he thought it would. So, I did not take his offer too seriously. But, over the next year or so we went back and forth on various potential deals for Bored.com, and during that time I started to realize selling Bored.com might be a reality, even if I found another buyer for it. What at first seemed out of the question to me (life without Bored.com) suddenly now seemed like something I wanted to do. In fact, there was a period of a few months where I did not hear from the buyer, and I assumed the deal was dead, so I went out looking for other potential buyers. I was now almost desperate to sell Bored.com, because I already had it in my head that that was the plan. I had already started dreaming about having all that money in the bank, working less, and focusing more on my family. In fact, at that point I didn’t really care what part of my company I sold, I just wanted to cash out. One option was for me keep Bored.com and sell my domain portfolio, but after I solicited some offers, I realized the price would be too low to make it worthwhile for me. Plus, it took almost no work to run my domains, so it made more sense to sell the sites I spent most of my time on, and keep my domains which made me money without having to do any work.
One reason I had not seriously though of selling before was that my hope was to build Bored.com up so it was huge site, and then eventually sell it for a crazy inflated price like all the other Internet deals we all read about. If other similar sites could sell for $20 million, why couldn’t mine? So, when the initial deal seemed dead, I shopped it around to companies like Google and Yahoo, but they all seemed to want bigger, more developed sites. They wanted sites with members, and sites with a much more professional design. Bored.com was more of a fixer-upper type site for them, and they were not looking for that. I did almost make a deal to sell it for $5 million to a small company that ran some sites similar to Bored.co, but that fell through because they buyer was having some business problems and needed to focus on other things.
Then after several months of not having any interest in the site, a company I had previously contacted about buying my 9000 domains emailed me to say they might be interested just in Bored.com. Then that same week my original buyer emailed me to tell me he was now ready to make a deal, and this time it would be all cash. At this point I was willing to let go of the dream of selling for an insanely high price, and settle for selling to whichever of my 2 potential buyers would pay the most for it.
My realistic goal was to sell for enough so I could put the money in the bank and live off the interest (bank CD rates were around 5% back then). I estimated that $5 million was an ideal amount for this, keeping in mind that I had to pay big taxes on this sale, and possibly a broker’s commission (depending on which buyer I sold to). I also included 170 related sites in the package because these were sites Bored.com linked to, or shared content with, plus they all linked back to Bored.com. And, whoever ran Bored.com could easily run these sites because they were setup similar to how Bored.com was run. Also, if did not sell these sites, the new buyer might decide to remove the links to these sites from Bored.com, and traffic to them would go way down and they would not be worth that much anymore. These sites added around $5000/month in net income, making the total net income around $40,000/month for all the sites I was selling. Losing this $40,000/month in income would mean my company would have almost no profits left, so that is why I had to make sure to have enough in the bank to live on after selling.
The initial offers from each of the 2 buyers were in the $3 million range, but by having them bid against each other over a 2-3 week period, I was able to get the new buyer up to $4 million and the original buyer up to $4.5 million. I had to pay a 10% broker’s commission on the deal with the original buyer though, so that made both offers about the same. What eventually made me decide to go with my original buyer was that even though I thought the new buyer was a much better fit for Bored.com, they wanted 6 weeks due dillegince, meaning they needed 6 more weeks to look everything over and they could back out for any reason during that time. The original buyer, knowing they might get outbid, offered to give me a $500,000 non-refundable deposit and the rest in 3 months, as long as I was willing to put the domains in escrow (to protect them from me running off with their $500,000) until the deal closed. If for some reason they backed out, I would get to keep their $500,000. This all sounded fair to me, so I took the deal. The deposit part appealed to me because with big deals like this, many times things go wrong, this way I would at least have $500,000 from all of this. And, if I had $500,000 in the bank, I actually would not care nearly as much about selling Bored.com anymore, and I maybe would have kept it. Putting Bored.com and the 170 sites into escrow was actually something I worried a lot about, because although I was getting a $500,000 deposit, there was still some risk. We choose Moniker.com to handle the escrow, but I worried what might happen if they went out of business during those 3 months, or if they got sued, or something else bad like that happened. I could potentially lose almost everything. Moniker.com assured me they had protection against stuff like that, but there was nothing they could have said that would have made me feel 100% secure about it. After the 3 months though, the buyer paid as planned and the deal closed.
There are also some other reasons I sold:
1. Bored.com was a very Web 1.0 website. It did not have social networking, user uploaded videos, blogs, or Facebook/Myspace/Twitter integration, or anything all the more modern sites now have. It even had pretty much the same look and format it had 10 years ago. I was always scared to change this too much because Bored.com was such a big success, and I worried any big changes I made might cause the site to not be popular anymore. Also, I am now 40, and although I know about all the latest Web 2.0 stuff, I am not really into it like most younger people are. Bored.com could easily have stayed the same for another 5 years, but eventually it would get too out of date if I didn’t update it. A new owner could easily do all these changes, and maybe make a lot more money from it.
2. I never did any direct ad sales for Bored.com, I just used the major ad networks such as Google and Casalemedia. A new owner could make double or triple the ad income by selling ads themselves, or reformating the site to have higher paying ad formats, so it was worth more to somebody else.
3. I was constantly having to think of new sites to create for Bored.com. After creating over 200 sites like that, it became a lot harder to think of new ideas. I could have just stopped adding sites to Bored.com, but I worried what effect that would have on traffic.
4. There were some tax advantages for selling. I was able to structure the deal so I sold my entire company, instead of just selling my websites, which allowed me to pay around 1/2 as much in taxes as most people would pay. If I had just sold Bored.com, it would have been treated like any other income, where I would have had to pay 30%-40% in state and federal taxes on it. But, by selling my company it was considered a captial gain, like when you sell shares of stock in the stock market. Capital gains are taxed at much lower tax rates. Most buyers don’t like deals to be setup this way though because it makes it much harder for them to deduct the purchase price on their own taxes. If they buy a website, they can deduct it, of if they buy a company they can’t.
5. I felt like I had been in a casino for the past 10 years. Every day was a gamble, and I could lose it all at anytime. It was thrilling, but also exhausting. It was a nice feeling to walk away from the table with money in my pocket.
6. My entire company was run by me, so if I ever died, it would be very hard for somebody else to take over for me. My servers would eventually shut down (from non-payment or computer problems) and my sites would be almost worthless. Somebody could try to liquidate everything quickly, but it would be a hugely discounted prices. Now if I die, my wealth will be easily transferred to my family.
7. When I looked into selling in 2007, I was eager to try to close a deal quickly because I was pretty sure the economy was soon going come crashing down, and I wanted to sell before that happened. I did not think my websites would get hurt much by a bad economy, but in a recession there are a lot less companies spending big money to buy websites, and the sales that do take place are at fire sale prices, so I wanted to avoid that.
So, that was the end to this chapter of my life. But, things did not go exactly as planned. More on that in future blog postings.