The website investing industry is in its infancy – there are some website investing funds but I’m not going to name those here because it feels as though the landscape is changing. If you are interested in finding out more, you can go online and search for website investing funds; these are companies who buy a portfolio of online businesses to operate and they seek investors to fund those acquisitions.
Typically, investment companies are structured in an LLC fashion where an investor is, technically speaking, a partner in the firm but there’s an arrangement where the investors are compensated either with interest on a loan or equity shares in the business which can be both ongoing net profits and then on exit some share of the business. Investors will usually be offered some combination – interests and equity although there’s different flavours of all of that.
Investment businesses are regulated by the S.E.C.
They are subject to rules about how they can advertise themselves and who they can present themselves to. Certified investors are their target but, in many cases, they are also able to offer shares of their business to non-certified investors. You must check these offers out one at a time and talk to your attorney about how it all works.
There are very few of these businesses when you contrast this with the real estate industry where there’s all kinds of opportunities for investors of all sizes to get their money into the market as owner/operators or as very passive hands-off investors whereas in the online business arena there’s fewer of those opportunities, but more are emerging every day.
So, one way is going with the fund company option, but another way is to find individual operators who are looking for partnership opportunities with someone who has capital.
There are a lot of people who develop pretty good expertise as an operator of a business, as a creator of business, in the online space who need money to either start it or to scale it and there are a lot of these individual operators, and there’s some operational companies who are looking for investors. They don’t call themselves funds necessarily, but they already have a portfolio they’re actively acquiring other businesses and they’re looking for money to help them to acquire more.
So, how do you find these opportunities?
The answer to that question is that you must go out and look for them. It’s possible to do some searches online, to join some electronic communities and some forums and groups online but it’s also necessary in this game to attend some physical conferences.
I’m part of a community called Rhodium, it’s a fantastic group of entrepreneurs and it’s one of the events that I go to every year. It’s a great space to make relationships with people who are already running online businesses or have some startup in one phase or either early on or ready to scale and multiply their growth.
The reason that personal connexion is important is that it’s where you’re going to put your capital at risk, you really need to get as much of a sense as you can of who you’re working with, what their strategy is, so it’s good to meet these people in person.
In fact, you know you’re going to be limited in who you can find just looking online, so it’s important that you get to conferences such as Rhodium or other SAS oriented conferences. There’s a lot of conferences, based around certain business models online there’s affiliate conferences and SAS and e-commerce conferences that you can go to all of which have lots of owner/operator type people who are attending both to try to learn about things in their industry but also, they are people actively looking for investors.
There are going to be more of those more formalised opportunities for investment as time goes on but now, because our industry is relatively immature, is a good time to get involved before they formalise. The more formalised, they get probably then perhaps more stable the returns will be but perhaps less lucrative they’ll be over time. So, now is a good time to get in.