We are acquiring a URL asset from a now defunct company. THe owners want equity shares in our company to get the deal done along with some cash. Seeking suggestions on structures that work well that covers our basis to buy back the shares eventually but give them upside potential if new company is successful
This is an incredibly convoluted scenario that I would suggest is likely not worth the trouble. Let's first start with the equity. Let's assume that the current value of the domain you wish to acquire is $40,000. They want $20,000 and 2% of your company. For the example's sake, let's also assume your company is currently valued at $1,000,000.
Now you go raise a seed round at $5,000,000 pre-money, so the value of that equity you gave up is worth $100,000.
Now let's fast-forward a few years and you've just finished your series C round that values your company at $100,000,000. To buy a domain name, you gave away equity that ended-up being worth $2,000,000.
I encourage all entrepreneurs to think about this type of scenario when "spending" equity on anything.
Your question gets even more stranger when asking about a mechanism by which these shares can be repurchased. Why would they agree to cap their upside in equity? That defeats the whole purpose of taking equity in lieu of cash.
Lastly, even if everyone agreed that this domain name was exceptionally valuable, a complex agreement around it would certainly give many investors pause, and might result in investors negatively perceiving this deal.
So unless really your whole company is dependent on this domain name, then I'd suggest you find the cash they want to fully purchase the domain name without any strings or find a different domain name.
Happy to talk to you about any of this in further detail.
I agree with Tom. Wow! Can you imagine giving away equity for a domain name. I would seriously consider using .co or .org
Craigslist has been very successful using .org
Clarity uses .fm
I say...don't give in on this. If you have to use another name for the website then do so. Believe me if what you have to offer is not more important than the domain name then you will not be successful with the very best domain name.
Make a reasonable offer for the url and if there is no deal then there is no deal.
Michael T. Irvin
"Get To The Top Without The Slop"