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“Returns competed away”. I have been thinking about this concept a lot. As SaaS acquisition valuations continue climbing, I’m wondering, is it time to wait out this cycle?
Investors make most of their returns from a few bets, while the vast majority fail to hit paydirt. Sometimes these bets pay off because the investors had a vision of the market’s direction , other times they entered an inefficient market.
Inefficient markets can be anything from the early days of Facebook ad buying, to mid-Nineties Russian stock vouchers.
Some of my favorite twitter follows are seeing markets become efficient right before our eyes:
What is market efficiency? According to the Efficient Market Hypothesis, efficient markets have a large number of participants, freely available information, and affordable transaction fees. The theory states that it is in an efficient market all pertinent information is factored in the market price. So you, the buyer, are always purchasing the assets at fair market value.
Inefficient markets have higher upside, and way more risk. The hallmark inefficiencies: small number of participants, limited information, fewer opportunities to liquidate, and less capital.
While these allow private market investments to outperform public market investments, the same attributes can make it extremely difficult for many investors to participate.
Why are some of these markets becoming more efficient? More capital searching for yields, new technology making marketplaces.
The question is, where should we be chasing right now? Feel free to email me your best ideas!
Today’s Deal: Digital Real Estate Funds
I know several funds focused on “Digital Real Estate” better known as content sites, lead gen sites, or affiliate sites. They are businesses focused on driving SEO traffic to their page, then funneling that traffic to partners.
In case you haven’t noticed, Google “The Best _____” and the top 10 websites are basically just display windows for Amazon products. Why is that? For years Amazon offered these sites crazy commissions for each sale they delivered (within 24 hours). In 2020, Amazon slashed commissions across the board, and many of these sites are now looking for better monetization strategies.
Several experienced operators have begun raising funds from outside investors to acquire sites. Funds range from traditional PE to companies like Blackbook Investments, who operate sites purchased by other investors.
The best funds that focus on this strategy are experts on the key drivers:
SEO and Content
Monetization strategies
Web design
Topic discovery
Domain Magnate is one of the more experienced funds in this space. The founders have been acquiring digital assets for 16 years. They are currently raising their third fund and allowed me to share the offering:
https://www.domainmagnate.com/fund
What I love about this market is there are tons of value add opportunities. Buyers can find poorly designed sites receiving a fire hose of traffic due to their age, or niche. Fix them up, improve the positioning, and cashflow.
We will only share deals we would invest in. So keep an eye out, and happy hunting!
-Andrew Swiler-
Feel free to share with others, and shoot me an email with specific types of deals you are looking for!