Using an Option to Buy a Domain Name
Last week, I wrote an article about a startup called Final that is using the GetFinal.com domain name for its website rather than the high value Final.com domain name. One of the commenters remarked that the company is a very new startup and likely doesn’t have the funding to buy the domain name right now. In a situation where a startup doesn’t have the funding to buy an expensive domain name, they might want to inquire about buying an option to buy a domain name.
Essentially, buying an option from a domain owner would entail paying a certain price now to lock in a price for a future purchase. For instance, using my own domain name as an example, for $25,000, I could sell someone an option to buy DomainInvesting.com at a strike price of $2,000,000 within the next 3 years. This means the prospective buyer pays me $25,000 today to lock in a $2,000,000 price at some point during the next 3 years. If they decide against buying the domain name, I keep the $25,000 and can sell the domain name to anyone else once the option expires.
There are advantages to both the prospective buyer and the domain name owner. For the prospect, the company gets to lock in a price that can’t be raised regardless of the circumstances. If the prospect raises tens of millions in funding or gets bought out at a billion dollar valuation, the domain owner cannot raise the price of the domain name above the option price. For the domain owner, he or she gets a sizeable, non-refundable fee up front and an agreeable sale price on the back-end should the option be realized.
Obviously, there is risk in a transaction like this. For instance, if the domain name is lost due to UDRP or lawsuit (or something else), if the domain owner goes bankrupt and loses the asset, or if something else happens to the status of the domain name, there could be trouble following through with the deal. Obviously a contract would provide recourse for the option holder, but it might not be easy to retrieve a domain name based on an option contract. Lawyers would need to be consulted to ensure both parties are adequately protected. Perhaps an escrow service could protect the asset during the option period.
I am sure there are people who have used options to buy a domain name, and I would be interested in hearing your thoughts on this.
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