lending

This page looks at lending secured by domain names.

It covers -

• introduction
• issues

It supplements discussion in the broader Domain Names & DNS profile regarding domaining and monetisation

     introduction

Lending is a matter of risks, returns and the availability of capital (with innovation thus often occurring in periods of economic growth or exuberance). In principle, financiers will make loans that secured by any asset that -

• they understand (or merely think that they understand)
• is recognised in national accounting guidelines or other indicators
• appears likely to retain value in an economic downturn (eg because that asset is in demand by potential purchasers and/or generates revenue)
• can be readily disposed of by the financier if that lender has to call in the loan.

Banks and other financiers have thus traditionally made loans secured by real estate, patents, customs revenue, share portfolios and tangibles such as fine art or antique violins. Given the availability of capital in the era of private equity and hedge funds it is unsurprising that some financiers have experiemented with lending based on the value of domain names.

Iin 2001 the BBC reported that the Industrial Bank of Korea had teamed up with dot-kr main registrar Internet Plaza City, accepting domains as collateral for loans. The venture planned to make loans of up to 30% of the assessed value of the name, with a limit of £16,000. It is unclear, however, whether the scheme was not in fact a way of dealing with problem loans to the Korean dot-com industry and there was unhappiness with the severity of some valuations.

In principle loans based on intangibles such as domain names are quite conceivable, in the same way that some financiers will lend on the basis of what they perceive is the market value of patents, trademarks or copyrights.

Perceptions that the portfolios of major domainers (eg those holding several thousand 'prime' names or several hundred less sparkling names) are likely to retain value and to generate revenue that is greater than both holding costs and alternative investments has led some investors to inject funds into those businesses since the dot-com crash. It is uncertain whether expectations about significant profitability will be met in the long term.

Those domainers do not appear to be packaging derivatives of their portfolios: if you want to invest you are required to buy shares/bonds in the portfolio operator as distinct from a stake in the specific portfolio or part of the portfolio.

In 2007 Domain Capital claimed to be

the first and only financial services company to offer financing to businesses based on the inherent and recognized value of premium domain names.  Our vision is to innovate exciting new financial products and services designed to enable entrepreneurs to exploit new business models.

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