Potentially Sticky Ethical Situation Regarding An End User

[Deleted member 111831]

So I invested in a startup that does not own their .com. They added a word to it instead but they just go by a dictionary word. For example like Square did with squareup.com, buying square.com later.

I decided to reach out to the owner of the .com on my own and see if they might want to sell it. It was really hard to track them down (they've owned the domain for 20 years, private registration, email bounced etc) but I was finally able to do it after like an hour of hardcore digging.

Owner quoted a very reasonable and modest price for the domain. If I had no association with the startup I would buy it myself at that price and just sit on it, hoping the startup turns into the next Facebook so I could demand $50 million for it a few years from now.

But that would definitely seem unethical and shady to the startup. Startups view domainers as scum anyway, if one of their own investors bought the domain behind their back and then haggled with them for top dollar, I would suspect they'd never want anything to do with me again. And may even write blog posts etc about what a piece of shit I am.

So how would you handle this? Should I just put them in touch with the owner and let them buy it for pennies on the dollar? Or is there a happy medium, where I can preserve the relationship but also make something myself?

 

[Shane]

It's business. There is no dilemma. Buy it and sell it for the most you can possibly get.

 

[billp3]

It's business. There is no dilemma. Buy it and sell it for the most you can possibly get.

It's not quite that simple.

There is a conflict of interests here. You are investor, yet you are hoping to get a payday out of the company at a later date by selling them a domain.

I personally think it's unethical, and if done to me our relationship would surely be damaged. Is the possibility of your reputation and future connections in this area being harmed worth it?

Things to consider:

• % of equity you have in the company. If they are the next FB, is a future domain sale going to make that much of difference?
• The formality of the investment agreement -- did you sign a document that might restrict this type of situation?
• Is the business name trademarked? If so, you might be inviting a UDRP later down the road. Even if it isn't, you're not 100% covered in the event of a UDRP since the domain was obviously acquired with the intent to sell it to them at a profit. That will be hard to deny since you have inside knowledge of the company.
• How would you react if you were in other party's shoes and what you are proposing was done to you?

If I were in your situation, I would see if they're interested in acquiring the .com now at the price you were quoted plus a broker/finder's fee of some sort. If they pass, I would tell them that you plan on acquiring the domain for your portfolio, making sure it's all in writing/email.

 

[Deleted member 111831]

It's not quite that simple.

There is a conflict of interests here. You are investor, yet you are hoping to get a payday out of the company at a later date by selling them a domain.

I personally think it's unethical, and if done to me our relationship would surely be damaged.

Ya, I'd have to agree.

Is the possibility of your reputation and future connections in this area being harmed worth it?

It would be worth it if I could guarantee a 7-figure flip. But it's not worth it on the small chance of that happening.

• % of equity you have in the company. If they are the next FB, is a future domain sale going to make that much of difference?

My equity is small. And yes it would make a difference. It may match or exceed my return as an investor.

• The formality of the investment agreement -- did you sign a document that might restrict this type of situation?

Excellent point. I never thought about that. But I have reviewed the documents I signed and there is nothing in there that restricts my behavior in any way, other than that I cannot sell my shares except under certain conditions.

• Is the business name trademarked? If so, you might be inviting a UDRP later down the road. Even if it isn't, you're not 100% covered in the event of a UDRP since the domain was obviously acquired with the intent to sell it to them at a profit. That will be hard to deny since you have inside knowledge of the company.

I doubt this name could ever be trademarked. It's a common dictionary word. Like 'ocean' or 'turtle'

Do you or anybody else know if it's 'bad faith' to buy a domain intending to sell it to somebody later, even if the name cannot be trademarked?

• How would you react if you were in other party's shoes and what you are proposing was done to you?

I wouldn't like it at all. It would probably ruin the relationship.

If I were in your situation, I would see if they're interested in acquiring the .com now at the price you were quoted plus a broker/finder's fee of some sort. If they pass, I would tell them that you plan on acquiring the domain for your portfolio, making sure it's all in writing/email.

I can't see them being ok with the finders fee, I wouldn't be. At the same time, I am not ok with making nothing on the sale.

I do like the idea of having them decline to buy it and then me buying it. But when it comes time for them to buy it, they are going to want to pay me what I paid for it. I'll get nothing for the gamble that I took. Again, relationship gets ruined.

There is no way out of this one! lol

 

[Biggie]

depends on the investment percent/ ownership portion of the company you hold

and if the principals of this startup know you personally or as an individual investor.

if you are an unknown investor with minor stake, and there are no "prohibitions" for such actions within "share" agreements, you may be all good.

it's a "fence-walker" for sure, so don't to fall on the wrong side and get bit in the butt later.

Good luck!

 

[draggar]

Why not act like a negotiator for the start-up and the owner of the domain for a fee?

It's a win-win. You get extra cash (albeit, not millions), they get the domain, and you look like someone who can be trusted.

 

[Knocks]

And may even write blog posts etc about what a piece of shit I am.

And rightly so. The only right thing to do here is acquire the domain on their behalf and hand it over to them for zero commission.

If you want to back stab them, then sell your stake first, then acquire the domain and sit on it. But you can't both fuck them over and be their friend. I don't even understand how anyone would see this as a dilemma or a "sticky situation."

 

[Theo]

The idea is to make money, right? That's the reason you invested in the start-up. You didn't put money in to be on the good Samaritan list on the CEO's wall.

Depending on your actual investment and commitment, along with the actual cost of this domain, there are ways to profit from the sale, as long as the company is in agreement. You have to set up an agreement with them in advance before proceeding further. If you're confident that you can effectively broker the domain to the company, add a nominal fee and close the deal.

 

[benn]

As a startup guy, I would be thrilled to pay a reasonable broker fee to you in this situation. Even in the unlikely scenario that the entrepreneur had the time or know-how to track down the owner, they almost certainly would have paid much much more. Founders have zero leverage in this situation - They have an obvious vested interest in the name already, and often publicly disclosed VC dollars in the bank. And the price (for them) will only go up if they have any success, often a digit at a time. Tell them everything, ofter to represent them so that the price does jump to some percentage of their funding.

 

[Deleted member 111831]

And rightly so. The only right thing to do here is acquire the domain on their behalf and hand it over to them for zero commission.

If you want to back stab them, then sell your stake first, then acquire the domain and sit on it. But you can't both fuck them over and be their friend. I don't even understand how anyone would see this as a dilemma or a "sticky situation."

I understand this view completely. It's just odd seeing it on a domaining forum.

Others here agree with your general position but the extreme wording you've used is what you typically see from non-domainers (who call us squatters and extortionists and such).

 

[Willox Perez]

A lot of great points have been touched regarding the situation. I see a lot of people leaning towards the business make money aspect which is fine,
but it is also very important to keep that integrity intact especially when it is obvious it would bother you to act shady like that.

Definitely makes sense to be honest and to give the startup a chance to see if they want to acquire the name, if not then definitely tell them
you want that name yourself. As long as you are upfront about your intentions it should be fine.

Hope that helps!

 

[tha-she]

I would say if you have investments in a company thats the next fb , you should not worry to much about money in the future

 

[Deleted member 111831]

That was a hypothetical. Startup investing is like buying lottery tickets. All I have is a lottery ticket.