A “Hedge Fund” That Invests in Websites

Ever dreamed of being a Wall Street kingpin?  If you could pool investment money and use it to buy income-producing websites, you could literally start your own mini hedge fund.

There is a healthy marketplace for websites on Flippa.com and other sites, and I think there a massive opportunity to build a real business around this idea.

A website will typically sell for 6-24 months earnings, which in a traditional sense is an insanely low multiplier.  In investment terms, that would mean 50 – 200% returns!

If you can attract investors looking to diversify and potentially destroy the returns they’re getting from stocks or other mutual funds, you’ll have a limitless pool of funds to draw from.

Let’s say you average a 50% return on your website acquisitions — that’s huge! Share the proceeds amongst your investors, keep some for profit and overhead, and repeat.

What you’ll need:

  • Become an expert in Flippa and other website marketplaces.  Learn how to evaluate the value of each sale and how to separate the winners from the duds.
  • A maintenance / monetization staff.  Good income-producing websites are mini-businesses themselves, and it’s rare to find a business that runs completely on auto-pilot.  You’ll need a small team (think virtual employees) that can handle content creation and general troubleshooting issues.
  • Some starter funds.  Although you can get started in this business for less than $500, it will take more to build a serious and sustainable portfolio.  In a venture like this nobody wants to be the first sucker, but if you can generate some consistent returns over time you’ll have people beating a path to your door.

Because the Internet is a young and constantly changing medium, this business idea is certainly not without risk.  Among them:

  • Regulatory red tape.  You’ll have to be careful how you market yourself to avoid trouble with the SEC.
  • Liquidity.  If you (or your investors) need to cash out, it could take some time.  Selling a website isn’t as easy as selling a stock.
  • Google drama.  Many sites are monetized via AdSense, which is becoming notorious for arbitrarily shutting down whole accounts.  Diversified revenue streams will help mitigate this risk.

Still, the rewards and upside potential make it worthwhile to figure out a way around the challenges.

I think a pretty cool business could be built around this idea. All it takes is someone with the ganas to start it.

 

  • http://www.drewmeyersinsights.com/ Drew Meyers

    LOVE LOVE it — for the right person (which is not me). Dan should give this a shot since he follows flippa regularly anyway.

  • http://www.facebook.com/people/Dan-Nelson/533595655 Dan Nelson

    Agreed! There is a fantastic opportunity here for those with a little cash and know-how. Quinstreet (QNST) and Internet Brands inc. have built massive businesses buying and developing web properties. But there are still endless opportunities for buying low-end or medium sized sites and Flippa is a great place to get your feet wet!