Other. People’s. Money.
They invest cash. You leverage your knowledge, systems and relationships with building niche sites.
It can be a huge win/win in all kinds of businesses.
Can you use other people’s money for launching, growing and selling niche sites?
You bet you can. I am. I’ve started with one site with one investor who made a fairly small investment. I want to see if the concept works. I think it will.
This article steps you through how I’m going about it.
But first, why use other people’s money?
Table of Contents
- What are the benefits of using other people’s money for growing niche websites?
- When does it make sense to use other people’s money?
- What do you do with other people’s money?
- What if you don’t hit the necessary net monthly income?
- Things to consider:
- Can you scale up using other people’s money?
- Will I scale up to hedge fund level?
What are the benefits of using other people’s money for growing niche websites?
There are several benefits. They are:
If you don’t have oodles of cash to pour into content, getting someone to finance it means you can grow a site faster. Take me for instance, I have 8 niche sites that require content regularly. If I want to add more, I have to part with more cash that won’t generate a positive return in many months.
An investor solves the problem. They invest in the content hoping for a return when the site earns cash and is sold at some point.
It’s a win/win… assuming all goes well.
If you have a successful site or two (or more), you have knowledge, systems and relationships that other people don’t have.
Systems: I have systems in place for growing multiple niche sites. For example, I’ve trained a great writing team to handle all my content, including putting all content on my sites. I just review it and click publish.
Relationships: I’m also accepted into premium header bidding networks and a very good video ad network. This means I can earn higher RPMs out-of-the-box due to my relationships.
Knowledge: I’m fairly knowledgeable about launching and building new niche sites. It’s faster for me having several sites growing than someone who has never done it.
Other web assets: I can use my other web assets to help speed up growth which makes it attractive for investors. I can drive some traffic to new sites from other email lists, social channels, push notifications, etc. While it doesn’t make sense to cross-promote all articles among audiences, there is often an opportunity to cross-promote some content.
When does it make sense to use other people’s money?
It’s up to you, but I think it makes sense once you have some success as well as systems in place to leverage the invested funds. You want to do all you can to ensure you and your investors earn a positive return.
It’s probably not a good idea to use other people’s money if you’re in early days with your first site. You want to learn the ropes and establish systems to make it likely everyone will benefit.
What do you do with other people’s money?
It all depends on your online business model, but if it’s a niche site or blog, it makes the most sense to invest in content and/or links. Content is the biggest ongoing cost and it’s the revenue driver.
You could also use it to buy traffic if you have profitable funnels set up but are short on cash flow.
The economics of using investor funds to grow niche sites
Let’s step through a few scenarios to see how things pan out using investor money.
For each scenario, assume the investor owns 50% of the website and you as site admin own 50%.
Scenario #1: $500 per month for 36 months
In this case, the total investment is $18,000.
Net monthly income at the 36-month mark: $1,000
Site value: $1,000 x 30 = $30,000
Assume all revenue was reinvested.
Net loss to the investor: Loses $3,000. Since you get $15,000 of the sale price, your investor receives $15,000. Having invested $18K, they lose money.
Notice how you actually get a decent payday. Your $15,000 portion cost you nothing except some time. Assuming you have a good team in place to handle all the work, the amount of time you put in isn’t much.
Same as above except the site earns $2,000 per month at the 36-month mark.
In this case the site is worth $2,000 x 30 = $60,000.
Net profit to the investor is $30,000 – $18,000 – $12,000. That’s a 67% return in 3 years. That’s very good.
I could go on and on with scenarios, but you get the point.
Essentially, you need to figure out how much net monthly income you need to hit in order for you and your investor to receive a decent return.
Scenario #3: Site purchase
Another way to go about this is using investor money to buy a site which you then grow.
This is a bit riskier because the cash outlay is higher. However, there’s less risk if you buy a good site because an aged, healthy site can grow faster under solid management.
What if you don’t hit the necessary net monthly income?
This is very possible. In this case, you and your investor can agree to sell anyway. Or, you can continue growing the site reinvesting monthly revenue until the site’s value will result in a good return.
The problem with continuing to grow the site is you have to keep putting time into the site when selling nets you a good profit (but a loss for your investor). This is why, as I set out below, you need to agree on an exit strategy.
I would rather everyone profit nicely so I wouldn’t have a problem putting more time to grow a site to where a sale results in a good return for the investors. Besides, I outsource everything so it’s not like it takes up too much of my time.
Things to consider:
Total financial investment
You and the investor may view this from different perspectives.
Your investor will want to know the total amount of money they must invest over time.
You will want to know that your investor will continue funding content indefinitely until the site is sold.
The fact is your investor will want to know how much they are obliged to pony up. Is it $1,000 for 24 months (or just invest the full $24K up front)? Is it $750 for 12 months?
You can’t assume they will fund content indefinitely. You must assume the investor will want to know how much they must invest hoping to secure a good return on that investment.
The optimal exit point is impossible to predict. Here’s where it could get tricky.
As the person who manages the site, you will put in effort until it’s sold. The investor, on the other hand, will stop contributing at some point. As the site administrator, you may want to sell sooner rather than later because you have to keep working on it. The investor, on the other hand, may prefer reinvesting all revenue into the site to grow it further for a higher sale price. There’s a conflict there which makes agreeing on an exit strategy difficult.
One way around this conflict is that you as site admin stipulate up front that you can sell it at some predetermined point or at the point when the investor stops putting money into the site.
Don’t go out and collect $350,000 and then plow it into one site at one time unless you really know what you’re doing and have a solid plan. Even though I have a few successes under my belt, I would not want to be responsible for that amount of money. I’d be nervous and worried, which is not a fun way to live.
I started very small. I have one investor on one site and it’s a small investment ($12,000). I promised nothing except that I would bo my best.
Don’t over promise
Websites are not a sure thing. You do not control traffic sources or monetization. Things change and many aspects are beyond your control. Do not promise crazy returns or any returns at all. In my one small deal, I made it very clear the entire thing could be a bust. I minimized the potential upside. While I’m confident the project will work out well, one never knows.
Don’t do it out of desperation
I’m doing this “Joint Venture” for fun. The investor is an old friend. It’s a business venture we get to work on together. He’s well aware of the risks. He has quite a bit of money so losing his small investment will not impact his lifestyle or financial situation in any way.
By doing it out of desperation, I’m referring to asking friends and family to part with money they can’t afford to lose to help you out.
In other words, if you’re having trouble building up a moderately successful blogging business, more money isn’t the solution. I’ve watched a lot of Shark Tank shows on Netflix and there’s a reason the sharks rarely invest in the businesses with low or no sales. They prefer investing in a proven business where pouring money into it will scale it up fast. It’s the same with website investing. Pouring money into someone’s pockets who hasn’t figured it all out yet is not the best idea. However, funding an experienced, successful blogger is a reasonable investment.
Can you scale up using other people’s money?
Yes, of course. However, and I know nothing about securities law and regulations, but at some point, you may become subject to the regulatory body. This would open up another can of worms with respect to hoops to jump through.
Assuming you don’t mind getting properly set up with the regulatory body, in theory, you could build a hedge fund concept where the primary investment vehicle is websites. You attract investors and build and/or buy dozens or hundreds of websites. At this level, you’d need to hire managers which increases the cost, but given the high rate of return of websites when run by capable people, there’s no reason this concept couldn’t be scaled up big time.
Will I scale up to hedge fund level?
I doubt it. I have one site with one investor to see how it goes. The investment is small (capped at $12,000 over 2 years), which means the potential losses are small. Moreover, the site was an established site I had lying around and was already making a little money so I think it will work.
We need only hit $1,000 per month net income to generate a positive return. $1,500 per month will result in an excellent return.
The question is whether the $12,000 investment will get the site earning enough to then self-fund content in order to grow it big enough for an outstanding return on investment. In other words, will the $12,000 investment over 2 years get the site earning $500 to $1,000 per month which can then be used to pay for ongoing content to further growth? I’m optimistic it will, but we’ll see.
As for scaling this concept big time, I would then become a money manager which could be lucrative, but I don’t relish having to deal with all the legalities and the stress of potentially losing other people’s money. That said, I rule nothing out.