Website investment funds are a new investment vehicle. Within these funds, operators acquire website assets and provide you with dividend payouts quarterly. A full deep dive into these funds was done in this article.
One such fund operator is Domain Magnate, headed by Michael Bereslavsky. This article will cover what Domain Magnate does, the results of their first fund, and a detailed interview with Michael about their fund philosophy.
Let’s get into it!
About Domain Magnate
Domain Magnate is a micro Private Equity firm, specializing in acquiring and operating online businesses, with under $1M revenue. Domain Magnate has a team of 18 people, based all around the world, mainly specializing in finding and acquiring great deals and growing businesses. DM operates several funds, private portfolios, and individual websites for investors.
Michael, the CEO of Domain Magnate, is an online entrepreneur. He’s been involved in the online business space since 2004 and has done hundreds of transactions, buying and selling online businesses, websites, and domain names. Michael has spoken at numerous conferences and appeared in publications, events, and podcasts as an expert in buying businesses.
Domain Magnate Fund 1 Results
In November 2020, Domain Magnate released details on the results of their first fund. They acquired their first deal in January 2019 for the fund and continue acquiring up until July 2020.
In 1.5 years of operations, total of 9 acquisitions. The breakdown of returns is as follows:
- Total acquisition cost: $551,223
- Total revenue generate: $388,570
- Total expenses: $73,445
- Total exits after fees: $494,272
- Total profit: $809,397
- Paid out to investors: 469,183
They are now planning to open up their second fund.
15 Questions with Michael Bereslavsky: The Interview
I asked Michael a series of questions about their investment philosophy, fund details, and how they deploy capital into website asset.
1. Why did you start your first website investment fund?
We’ve been buying and selling sites privately with our own capital successfully for many years, however, we’ve also had to let many good deals go due to limited resources.
Back in late 2018 I decided to allow some investors in, and we started by making several deals, and that quickly grew into our first family fund. It invested over $550K so far and had over 130% return in its first 1.5 years of operation.
We’ve published more detailed results here.
2. How large will your next fund be?
Up to $10M.
3. How large is your team managing the fund?
We have 18 people on the DM team and we also work with 3 small agencies and several freelancers for additional services, like content editing, web design, development, and marketing.
Once we acquire a new business we analyze it, and assign some of our managers, and assistants to the project, according to the skills and experience required for it. If we do not have the right expertise in our team (e.g., video production) we work with our existing trusted network of freelancers and agencies or hire more people.
4. What’s the difference between your Fund versus the Buy and Manage service?
The buy-manage service allows first-time buyers to acquire and own a business directly, be involved in the decision and strategy, with us managing and growing it and taking care of everything.
It’s designed for investors who want to have more control and direct ownership over the business they invest, but do not have the time and expertise to manage it directly. The upcoming fund will allow people to invest in a diversified portfolio of businesses, but the investors will not be able to choose deals or affect the strategy or decisions of the fund.
This is done to maximize effectiveness and allow us to manage it with the optimal strategy for long-term performance.
5. Who is your ideal investor in your fund? Do they need to accredited?
We generally only accept investors who have some prior experience and a general understanding of the industry, as well as the risks associated with investing in online businesses. For the upcoming fund all our investors have to be accredited (have a net worth of over $1M or income exceeding $200K per year).
The ideal investor would be someone who owns some online businesses themselves and is looking to invest in more online businesses, without being involved in the operation.
6. What’s the legal structure behind your fund?
7. Do you source private website deal flow? If so, how?
Yes, over the past 15+ years in the business we’ve built a wide network for incoming dealflow.
Many of our deals are private, which allows us to buy better quality sites, and cheaper deals, before they are listed on the market. We put a lot of effort into our deal flow, including growing our networks (including myself personally, some of the team members, and our advisors), doing targeted outreach, participating in communities, doing marketing, paid ads, podcasts, through our association with Dealflow Brokerage, and many more.
As we have a great reputation in the industry, sellers often prefer dealing with us over other buyers, as we are transparent with our process, and they know what they are getting. We’ve had multiple deals where sellers preferred to sell to us, despite having higher offers from other buyers, due to our trust and the focus on making the process easy for sellers.
8. Do you buy mostly private or use brokers for website deal flow?
It’s a mix, we source everywhere we can and then compare deals on their merit, based on numbers, risks, and opportunities and fit for our criteria.
Most of our deals have been private, as the deals available on the markets and among brokers generally don’t meet our strict criteria. However, recently we are working more with select marketplaces and brokers, where we are able to get some advantages and find a higher overall quality of deals.
9. What are your criteria for purchasing a website? What do you look for?
Our public criteria is available here.
We aim to be transparent with our sellers and investors. We buy content and SaaS businesses. We also have our own methods of due diligence and risk analysis. We generally prefer sites with longer track records and history and avoid sites using aggressive SEO methods to rank them fast.
10. How many sites do you purchase per fund?
For the upcoming fund, we plan to acquire between 5 and 10 businesses. In our first fund, we had 9 acquisitions, however, it included many smaller deals in 5 figures, in accordance with the funds’ strategy. With our other funds and private portfolios, it was 2-3 deals initially, with the exception of acquiring more later.
11. How diversified are the traffic and revenue sources for each site in the fund?
We focus on sites with mainly organic traffic, as that’s our main expertise, while revenue sources may vary quite a bit from various ad and affiliate networks to selling digital products, subscriptions, and SaaS tools.
We aim for a reasonable amount of diverse traffic, especially with bigger businesses. However, I think it’s more important to assess the risks associated with a specific traffic source, rather than focusing on increased diversification.
12. What are the criteria that make you decide to sell a website?
When we acquire a website we make a plan which includes a timeline for resale, this plan and timeline are then updated during our quarterly reviews. Generally speaking, we decide to sell businesses when we believe the potential for upside is lower than the risk of downside.
For example, in light of recent Google algorithm updates over the past year, we’ve decided to sell more of our newer affiliate sites due to the increased risks, and have sold most of our sites that were using some PBNs and similar higher risk SEO techniques.
For businesses where our plan includes some quick fixes and improvements, we often aim to resell within a year, while websites with longer-term growth plans can stay for several years. Additionally, we hold on to bigger sites for longer, than smaller ones. As bigger businesses generally tend to carry lower risks. Most of our selling decisions are affected by a risk analysis.
13. Do investors get initial capital and profit back after an individual website sale takes place? Or does the full fund have to liquidate for returns?
Good question, in the upcoming fund, same as our other funds we’ll distribute capital immediately after selling a website, at the next quarterly distribution. We’d like to keep it simple so we only have the initial period for raising capital, with no capital calls, and then we’ll distribute profits from revenues, and from the resale of businesses quarterly.
14. Do you have other competitors in this space?
Yes, since the industry is growing rapidly, there are many competitors, other micro PE firms, website operators, and other fund operators. I don’t see them as competition, as it is a big space, with plenty of opportunities for everyone so we just focus on doing what we do better. We often cooperate with other fund operators, stay in touch, and sometimes do deals.
I’ve also had discussions with several on our podcast. We recommend investors do their own research to learn about different opportunities before committing their capital.
15. What’s next for Domain Magnate?
We are focusing on improving our systems and acquiring more expertise within the company, to be able to provide better results to our investors, as we raise more capital and acquire bigger businesses.
We’ve been steadily increasing the average size of businesses we acquire, and currently, we are focusing on 6 figure deals and aiming to grow to target businesses priced in low-mid 7 figures next. I believe it’s the range with the most potential for profit, due to being below the interest of bigger PE firms and public companies, while also being above what most buyers or small funds can afford.
It will also add unique opportunities of combining, selling to strategic buyers, or even taking some companies public in the future, to take advantage of the high stock market evaluation, versus much lower profit multiples that these businesses currently sell for.