First. In summary:
- We are the only regulated commingled investment fund that can provide external investors with the opportunity to gain exposure to the ICANN Program. This is a major strategic development in the evolution of the Internet, which ICANN is currently in the process of unravelling. It is an asset class that ordinarily is closed to outside individual investors; for example, you can invest in Google or Amazon (two participants in the New gTLD program), but not specifically in their generic TLD operations. It also offers significant and entirely uncorrelated returns compared to the financial markets.
- This is a closed race: The application window was set from January – May 2012, and it is no longer possible to make new applications to operate Internet TLD Registries.
- It is a closed market with high barriers to entry: We are the only company offering a structured and regulated investment vehicle to enter at this stage
- Domain Venture Partners represents the only available, clean and direct, investment opportunity that allows you to gain exposure to a portfolio spread of specific (and some of the most attractive) assets.
- Domain Venture Partners is staffed by experienced professionals from investment banking and legal backgrounds, as well as leading Domain Name industry experts. We are able to bring efficiencies, enhanced monetisation strategies and deliver very high margins, due to our corporate and operational structure, in what is a developing and still highly inefficient market.
- Due to our scale and organisational structure, we are able to bring on-board the leading suppliers and service providers.
- We are (both physically and from a legal perspective) based in Gibraltar, which is an established on-shore (EU) and highly regulated financial services jurisdiction (http://www.gibraltar.gi/finance).
- TLDs can be seen as the equivalent to owning the ‘Freehold’ of the Internet from which domains are ‘leased’ on an annual basis. The existing best-known ones (.com, .info, .biz, etc.) are being supplemented by a range of ‘vertically’ relevant names, and will fundamentally change the structure of the Internet, e.g. the way things are indexed and ranked by Search Engines and consequently the way people use the Internet.
- In terms of anticipated returns, we have used historical (publicly available) numbers from existing generic TLDs and discounted them to remain conservative in our projections and valuations. Moreover, examples such as .loan, .download, .date, .faith, .men, which we own via Fund I, will quite obviously result in some very valuable Second Level Domains (just as fund.com, toys.com, etc. did under the existing TLD structure).
- Note that the numbers we have used for our base valuations purposes were achieved at a time when the Internet usage and traffic was far less developed and the operators’ strategies for monetising the TLDs less flexible compared to the enhancements now available.
- Moreover, the distribution channels (principally Internet Registrars) are far more established and more sophisticated than was the case during the period when the previous TLDs were launched. Some of those TLDs also had pricing restrictions, which inhibited the operators from maximising revenue.
Second. Our value-add is based on three core aspects:
1) Fund Structure
- Fiscal Jurisdiction – Gibraltar benefits from a low 10% Corporate Tax and domain sales are treated as Royalty Income, which is tax exempt.
- Investor friendly – A 12% Hurdle Rate / Preferred Rate of Return.
- Separate SPVs – Each TLD is held as a separate SPV, which provides clean and transparent cash-flows / valuations; and allows for a wide range of exit strategies. Combining financial sector experience with technological knowledge we, as a management team, bring fresh and professional thinking in terms of monetisation (sales/distribution strategies whilst operating the TLD, and also new exit routes):
– We are innovative in terms of the packages and offers we bring to the market (which will help drive the uptake and re-subscription rates).
– Each TLD will have specific interests attached to them; some will be characterised by high initial cash-flows, others will see valuations build over time; some considered more attractive by certain communities than others, i.e. music.download / film.download / app.download / software.download will be the focal point for one type of business, whereas cheap.loan / lowinterest.loan / newyork.date / quick.date / fashion.men, etc. will find attention among a quite different community. The key, however, is that the new generic TLD Programme will be much more ‘relevant’ to the Internet user and thus rationalise and connect the structure to the user community to a much greater extent than has been the case up until now
– Apart from interest in this development by the main industry players, these assets quickly develop the key features that typically interest institutions looking for recurrent annuity type income (akin to Infrastructure investment, Fixed Income – like IG / HY Credit, Government Bonds, High Dividend Stocks, etc.).
2) Company Structure
- Shared Services Company – We have created a shared services company, (‘operating’ business), which help drive the profitability of Domain Venture Partners (which holds and controls the assets). By stripping out operating costs at the Registry level the profitability of the underlying investments – not just on a revenue basis, but on an enterprise basis too – are increased significantly.
- Discount on fixed costs – Domain Venture Partners benefits from a significant discount on the fixed costs charged for operating each TLD (about ¼ of the market price).
- Market leading strategies – The ‘operating’ business has developed various innovative strategies to enhance the monetisation of the TLDs:
– Market readiness packages – In terms of the packages and offers we bring to the market (which will help drive the uptake and re-subscription rates).
– User segmentation and targeting – We target the relevant users and interested parties in a more focused way than previously, and induce auctions to increase the valuations.
– Premium names – We will market Premium names (see examples above) directly to parties that have a clear interest in them, and facilitate auctions.
3) Timing & Standing
- Closed market – It is a ‘closed market’ in the sense that the application round for the new generic TLD is over and only a limited number of businesses were aware of the process and fewer still had the technical expertise to participate.
- Early Entrant – As with any deregulation and privatisation, the early entrants benefit from very attractive early-stage valuations and the subsequent upside, as the changes are implemented, users migrate, and the new structure develops (in this case, on a global scale).
- High barriers to entry – both financial and technical
– The rigour and requirements ICANN applied to the application phase and the subsequent Initial Evaluations were very demanding. We have passed both with very high scores.
– We have a critical mass of TLD strings, the right TLD terms, the technical and industry knowledge and expertise, and the innovative sales strategies required to obtain the necessary reach and importance for the Registrars (who act as ‘brokers’ whom people/businesses wishing to register a domain go to for that service).
- Pedigree and standing – Whilst it is a closed space, there is significant validation and momentum behind this process, not only are market leaders such as Google and Amazon key actors, but it is also supported by the fact that many of the world’s largest brand names are participating (no less than 40% of the top Fortune 100 brands are already actively involved at this early stage).