Historically low interest rates and high government stimulus provided entrepreneurs and investors with easy access to funding. Transitions to remote and hybrid work and the rise of ecommerce made digitally-based businesses more attractive. Amid the Great Resignation, more workers considered career alternatives including entrepreneurship. While inflation and rising interest rates have somewhat cooled activity in the market more recently, signs point to sustained interest in entrepreneurial activity.

Trends in U.S. Entrepreneurial Activity

Since the beginning of COVID-19, interest in buying and selling businesses has exploded

Source: Flippa analysis of Google Trends data (2005–2024) | Image Credit: Flippa

According to data from the U.S. Census Bureau, total new business application volume today is approximately 50% greater than before the pandemic began in early 2020. And entrepreneurs are also considering transactions around existing businesses. Google search data has shown a spike in the search terms “how to sell a business” and “how to buy a business” in recent years. In the Google Trends index, search interest in both terms has risen from the high 30s (out of 100) before COVID to 80+ now, indicating significantly elevated interest.

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Total M&A Transaction Volume by State

While California accounts for the most buyer volume, lower-tax states account for a greater proportion of seller volume

Source: Flippa marketplace transactions (2016–2024) | Image Credit: Flippa

In recent years, the rapid pace of digital transformation has generated unparalleled demand for online businesses. While interest in entrepreneurship is up throughout the country, the volume of transactions varies by geography. Notably, residents in California, the epicenter of Silicon Valley, lead the pack of digital asset buyers, followed closely by those in Florida. Each state accounts for approximately 14% of total buyer volume. Other top states for buyers include Texas (8.9%), New York (7.3%), and Illinois (6.1%). 

However, the scenario shifts when examining sellers, where California residents do not dominate transaction volumes to the same extent. Instead, residents from states with lower or no tax implications, such as Florida, Texas, and Washington, command a significantly higher share of total seller volume at 15.8%, 14.2%, and 12.8%, respectively.

Per Capita M&A Transaction Volume by State

States in the Mountain West & Florida stand out for high levels of business transactions

Source: Flippa marketplace transactions (2016–2024) | Image Credit: Flippa

On a per capita basis, states in the Mountain West and Florida are home to a higher volume of buyers. Wyoming leads all states in buyer volume per capita at 3.38 times higher than the U.S. average, with other western states like Idaho, Arizona, and Washington also having buyer volume more than twice the national rate.

Leading states for sellers include Delaware, where the seller volume per capita is nearly 11 times higher than the U.S. average, and Wyoming, where the volume is almost 10 times higher. Delaware, Wyoming, and other leading states for sellers tend to be popular places to start a business due to business-friendly regulatory and tax structures. For example, Delaware is known for having clear corporate law, good liability and privacy protections, an efficient corporate court system, and certain tax advantages that make it an attractive place to operate. Meanwhile, Wyoming is regularly rated as having one of the best tax climates for businesses due to its lack of corporate and individual income taxes and relatively low sales tax rates.

Below is a comparison of per capita business transaction volumes for buyers and sellers in all 50 states. The analysis was conducted by Flippa using over 100,000 business transactions on its marketplace spanning the past eight years. For more information, see the methodology section below.

States With the Most Active Buyers

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States With the Most Active Sellers

Methodology

The data used in this study is from a proprietary set of more than 125,000 digital asset sales that occurred on the Flippa.com marketplace between 2016 and 2024. To determine the states with the most active tech investors, researchers at Flippa calculated how each state’s total transaction sales volume per capita compared to the U.S. average for both buyers and sellers. The total transaction sales volume was calculated as the sum of the sale prices for all transactions. States were ordered by the per capita buyer transaction volume.

References

1. Federal Reserve Economic Data (FRED). (2024, February). FEDFUNDS – Effective Federal Funds Rate. https://fred.stlouisfed.org/series/FEDFUNDS Retrieved March 9, 2024.
2. Federal Reserve Economic Data (FRED). (2024, February). FGEXPND – Federal Government: Current Expenditures. https://fred.stlouisfed.org/series/FGEXPND. Retrieved March 9, 2024.
3. World Economic Forum. (2022, February). The great resignation: Boom in startups from more diverse founders. https://www.weforum.org/agenda/2022/02/the-great-resignation-boom-in-startups-from-more-diverse-founders/
4. U.S. Census Bureau. (n.d.). Interactive Visualizations – Business and Financial Statistics. https://www.census.gov/econ/bfs/visualizations/interactivegraphs.html Retrieved March 9, 2024.
5. Harvard Business Services, Inc. (n.d.). Benefits of Incorporating in Delaware. https://www.delawareinc.com/before-forming-your-company/benefits-of-incorporating-in-delaware/
6. Tax Foundation. (2023, October). 2024 State Business Tax Climate Index. https://taxfoundation.org/research/all/state/2024-state-business-tax-climate-index/

Full Results

Accredited investors and qualified purchasers are two distinct rungs of the investment ladder. Each investor status has well-defined eligibility criteria, and both are provided with specific investment opportunities that the general public cannot access. 

I’ll discuss what lucrative opportunities accredited investors and qualified purchasers can invest in. And most importantly, we’ll explore the key differences between the two statuses.

But let’s start with the basics. What are accredited investors and qualified purchasers, and how do you become one?

What is an Accredited Investor?

The term “accredited investor” is a status provided to persons or entities who meet specific legislative, income, or net worth requirements.

Becoming an accredited investor qualifies you to make alternative investments in private market opportunities not regulated by the U.S. Securities and Exchange Commission (SEC).

For example, accredited investors can invest in private equity funds, hedge funds, and 3(c)(1) funds, typically limited to a maximum of 100 or up to 250 if the fund’s size is below $10 million.

Related: How to sell the shares of a private company?

Accredited Investor Qualifications and Eligibility Criteria

The criteria for becoming an accredited investor are quite straightforward. To be eligible, you must meet at least one of the following:

• Income: An annual income of over $200,000 in the last two years for an individual or $300,000 in the last two years for a couple. You must also prove that you expect to make the same amount or more in the coming years.

• Net worth: A net worth of $1 million or more, excluding the value of your home (either individually or combined with a spouse).

• Licenses: The possession of a Series 7, 62, 65, or 82 license. Each license proves to the SEC that you have the capabilities and expertise to invest in unregulated private market opportunities.

• Expertise: Being a sufficiently “knowledgeable employee” of a private fund.

You can also qualify as an accredited investor with a trust fund if it meets all three requirements.

• Net worth: Your fund’s total assets are greater than $5 million.

• Intentions: You did not form the fund specifically for the purpose of investing in a particular fund.

• Expertise: You can prove that you or your fund managers have the financial knowledge, skills, and experience to evaluate the merits and risks of an investment.

What is a Qualified Purchaser?

“Qualified purchaser” is a regulatory status provided to individuals or entities that meet certain investment criteria. Unlike accredited investors, qualified purchaser status depends on the value of a person’s investments, not their net worth or household income.

Qualified purchasers are the highest possible level of investors. As such, the eligibility for achieving this status is strict. That said, those that meet the requirements have access to a broader number of unregistered securities, such as 3(c)(7) investment funds and larger investment opportunities containing over 100 investors.

With the higher entry requirements and a broader range of opportunities available, it’s perhaps no surprise that qualified purchasers are often called “super accredited investors”.

Qualified Purchaser Qualifications and Eligibility Criteria

To become a qualified purchaser, an individual, married couple, or family office must have at least $5 million in investments, not counting the value of their primary residence. Eligible investments include:

• Bonds.
• Stocks.
• Cash and cash equivalents.
• Commodities.
• Investment properties.

Alternatively, Darren Robertson explains that an individual could achieve qualified purchaser status through a trust, provided they meet one of the following criteria:

• The trust has $5 million or more in investments, and two or more close family members own the trust. 

• The individuals granting assets to the trust are qualified purchasers, and the trust was not exclusively made to invest in a particular fund.

A company or entity is also eligible for qualified purchaser status if they have investments of $25 million or more. Finally, an investment manager can qualify, provided they manage over $25 million.

Accredited Investors vs Qualified Purchasers: What’s the Difference?

Despite the similarities between qualified purchasers and accredited investors, there are a number of notable distinctions between the two. Let’s explore four critical differences between accredited investors and qualified purchasers.

• Eligibility criteria: Accredited investors are defined based on their annual income, net worth, or possession of certain licenses. In contrast, qualified purchasers are defined by the value of their investments.

• Investment opportunities: Qualified purchasers have more investment opportunities, as they have access to both 3(c)(1) and 3(c)(7) funds. In contrast, accredited investors can only access 3(c)(1) funds.

• Limitations: As accredited investors can only invest in 3(c)(1) funds, they are typically limited to 100/250 investors under most circumstances. On the other hand, qualified investors can participate in funds with much larger investor limits. 

• Regulation: Accredited investors are still subject to certain laws and regulations, whereas qualified purchasers have additional exemptions from SEC legislation.

Qualified Purchasers vs Accredited Investors: Why do we Need to Differentiate Between the Two?

It’s important that the SEC differentiates between accredited investors and qualified purchasers for two key reasons: Financial stability and expertise.

Financial Stability

Qualified purchasers typically have more financial stability than accredited investors, allowing them to bear more risk and withstand substantial losses. This grants them access to the most unregulated asset classes, like 3(c)(7) funds and funds containing more than 100 investors. 

By imposing strict eligibility criteria on qualified purchaser status, the SEC protects less financially secure investors from these high-risk investment opportunities, meaning that accredited investors can purchase pre-IPO shares, and non-sophisticated investors will need to wait until a company officially lists its initial public offering (IPO).

Expertise

As the SEC determines qualified purchaser status on the value of an individual’s investment portfolio, all eligible qualified purchasers prove they have a history of successful past performances. This means those who qualify have the financial sophistication and knowledge to navigate the complexities of unregulated 3(c)(7) investment opportunities.

What can you Invest in as an Accredited Investor?

Accredited investors gain access to a number of special, private investment opportunities, such as:

• Angel investments.
• Real estate investment funds.
• Venture capital funds.
• Hedge funds.
• Private equity investments.
• Specialty investment funds.
• 3(c)(1) funds (funds with a maximum of 100 investors, or 250 investors for a fund size of $10 million or less).

Each of these entities sells securities known as Regulation D offerings. Any company that registers with the SEC and submits a Regulation D offering only needs to put forward essential information such as the company’s location, key offering, and primary officers. 

Any additional information they choose to provide is entirely up to their discretion. That said, all Regulation D offerings must still adhere to anti-fraud and anti-manipulation provisions. Regulation D offerings can benefit accredited investors by providing them with unique opportunities for diversification. 

They also have the potential to lead to more substantial returns on investment because Regulation D allows funds and startups to avoid the costs and complexities associated with public offerings. 

Related: How Sam Marks leveraged angel investments to own his future.

That said, with high rewards comes high risk. As regulation D offers are unregulated and have limited disclosure requirements, investors must remain cautious and use their expertise to make informed investment decisions.

What can you Invest in as a Qualified Purchaser?

Qualified purchasers gain access to all of the Regulation D investments offered to accredited investors, such as 3(c)(1) funds. In addition, they can also invest in private 3(c)(7) funds. These funds are only open to qualified purchasers and typically have an investor limit of 2000, compared to the 100/250 investor limit of 3(c)(1) funds.

As 3(c)(7) funds consist exclusively of experienced qualified purchasers, they have the potential to yield massive returns. Qualified investors’ expertise and financial capabilities typically result in fewer regulatory oversights, more effective risk management, and greater adaptability to evolving economic landscapes.

That said, 3(c)(7) funds are even higher risk than 3(c)(1) funds. The increased complexity of investment opportunities and the wider range of financial expertise among participants often introduce additional challenges, making a deep understanding of investment strategies critical for success. In addition, 3(c)(7) funds are even more unregulated than 3(c)(1) funds, meaning due diligence is essential. 

The Future of Private Investments 

The world of private investments has never been more enticing, but it’s essential that those interested have a firm understanding of the options available to them and the risks involved.

The legislation and compliances outlined by the SEC are ever-changing. The SEC has been pressured to relax its standards and allow more individuals to access private investment opportunities while, at the same time, being very pro ethical investing. Many consider limiting the opportunity of high ROI investments to those with significant wealth is unfair.

Summing Up

The aura surrounding private investment opportunities has been demystified with the ambition of helping accredited investors and qualified purchasers make informed decisions while safeguarding their financial stability.

With the right combination of investment advice, knowledge, and expertise, you’ll be prepared to make well-informed decisions regarding the investments best suited to your goals. 

Flippa’s sophisticated marketplace is the best way to invest in the businesses, digital assets and ideas you value the most. Whether you’re a seasoned accredited investor looking to expand your portfolio or an aspiring entrepreneur honing in on your first digital venture, Flippa’s platform will enable you to turn your financial aspirations into a reality. 

Start buying and selling on Flippa today.

What is a private stock?

A private company refers to a privately held commercial entity. The company can issue stock. But unlike public offerings, not anyone can buy private stocks and shares. Private company stocks aren’t listed on public stock exchanges or offered to the general public. 

The main difference between public and private shares is that private companies do not have to provide financial information to investors and shareholders.

So, how do you get public shares and stock? Generally speaking, only an accredited investor can buy private stocks and shares. However, you don’t have to be an accredited individual investor to own private shares. Private corporations may issue shares to employees, or you may inherit or receive private shares as a gift. 

Can a private company sell shares to the public?

You won’t be able to buy shares on the public exchange. Typically, private startup companies use equity compensation programs to pay employees during the early stages with limited capital. These programs also motivate employees by tying their earnings to the company’s success.

Private companies do not need to comply with the securities and exchange commission SEC regulations. Therefore, the company that issued the shares doesn’t need to provide financial information to investors and shareholders. Investors cannot compare accounts to make informed decisions, so private companies can only sell to accredited investors.

How many shares does a private company have?

When you set up a private company, the first shareholder (usually the founder and managing director) chooses how many shares to issue. Legally, you have to issue at least one share, but there is no upper limit—typically, it’ll be the number of shareholders you want in your privately held company. Additionally, businesses need to consider future funding opportunities.

How does equity work in a private company?

Equity is another word for shares or stocks. When a private company issues stock, shareholders own part of the company. For instance, if a company has ten shares, and you buy 2 of the company’s stocks, you will own 20% of the business. Generally speaking, we buy and sell private company stocks in even numbers, such as 20, 40, or 60, to make it easier to determine profits.

Buying stocks in private companies is not easy, so the shareholders tend to be chosen by the company. For instance, they could be business partners or employees, each with a stake in the company.

Can I sell my shares in a private company?

Yes, you can sell private shares. However, unlike public shares, selling private shares is not as easy. 

As the shares are not regulated or listed on public stock exchanges, it’s up to the individual seller to find a buyer. There are a few brokers to help sellers find a buyer. However, you will likely need permission from the issuing company. Alternatively, you may need to wait for the company to go public before selling. We’ll explain how to sell shares of private companies further on.

Why might you wish to sell private company shares? 

Anyone might wish to begin selling private stock to generate cash flow and raise capital investment. As an employee with private shares, you may want to sell to buy real estate without a personal loan or cover student loans. 

If you need approval before selling the shares, you might need to offer a valid reason or invest the capital rather than place it in your savings accounts.

How do you value shares in a private company?

Without a public trading market, it’s often quite challenging to value stocks in private companies. Shareholders must use various methods to determine the approximate value of their shares. Typical approaches to value shares include:

• Valuation ratios.
• Discounted cash flow (DCF) analysis.
• Internal rate of return (IRR).
• Comparable company analysis.

The comparable company analysis is the most popular method. It involves comparing the company to a public business. 

Both companies should be relatively the same size with similar business operations.

When can I sell my private shares? 

There is no legal or official schedule after investing in stocks. However, after receiving your shares, you should aim to wait for at least a year before selling. Private companies frown on those who sell their shares quickly — known as, trying to “flip” the stock for a quick profit. Holding onto private shares for a year won’t raise eyebrows, and your stock may even increase in value. 

How to sell private shares? 

How do you sell private shares without public trading on the stock market? While trickier, it’s not impossible to sell traded stock privately. Here are a few options. 

Find a private buyer

Without a public exchange, it’s the seller’s responsibility to find a buyer. Only accredited investors may buy private shares. Plus, you’ll need the company’s approval before completing the sale — they must approve your selling stock and the buyer. 

To make the process easier, you might enlist the help of third-party stock brokers to find a buyer. You can work without a broker, but private markets are tricky to navigate. Think of it like selling your house yourself. It’s possible but not easy. 

Participate in a buy-back scheme 

Some companies will buy back shares. A buy-back program will typically purchase a set number of shares or organize tender offers — where employees can sell their shares back to the company at a predetermined price. 

However, buy-back schemes and tender offers are rare. The company decides whether or not to organize such schemes, and even then, there is no guarantee that your shares will sell. 

You won’t need their approval to sell in these instances, but you also may not meet eligibility criteria. Or, there may be too much supply and not enough demand — meaning that there aren’t any potential shareholders to buy stock from you.

Moreover, the company will set the sale price, and you won’t get the opportunity to negotiate higher prices. Companies focus on preserving their own needs and may not be as receptive to your needs as brokers.

Sell on the secondary market

When a private company sells new shares to investors or employees, they do so on the secondary market. The platform connects private companies offering shares with interested buyers. If you’re interested in selling your shares, you might work with an experienced brokerage site that will prioritize your interests and assist you throughout the transaction. 

Pre-IPO shares (initial public offering)

Alternatively, a company can transition to a publicly traded company via an initial public offering IPO. Pre-IPO stocks sell to institutional investors who are often attracted to first-time company stocks easier to sell. The pre-IPO market is fairly substantial, and, with the ability to list stock publicly, it’s far easier to sell.

What should I consider before selling privately held shares? 

Selling shares of a private company is a significant decision that depends on your personal finance, among other factors.

1. Your company’s restrictions

Often, you cannot sell private company shares without the company’s permission. If you’ve received an employee stock option and wish to sell, you might need to obtain approval first — and the company has the right to refuse, which means it can buy back your stock before other potential investors do. 

The first step is to ask your CEO or founder whether they plan to run a buy-back program in which they set the rules. If they offer approval for you to sell your shares of stock to a buyer, you can go ahead with the transaction.

2. The bid-ask spread

Determine the bid-ask spread if you plan to sell your stock offerings through a secondary marketplace. This is the difference between the highest bidding price to buy and the lowest price to sell. 

For instance, if the asking price is $100 and the highest bid offer is $90, the spread is $10. While the spread may not seem huge, when multiplied by the number of shares you wish to sell, you could miss out on a potentially significant profit.

3. The tax implications

When calculating your total gains, you must consider taxes. You must pay income tax on your gains when you exercise stock options and sell shares in the same transaction. 

However, if you sell your shares before exercising stock options, you will have to pay tax on the difference between your strike price (amount per share) and the fair market value. You may also have to pay capital gains tax on any value increases.

4. Liquidity needs 

When selling your stock picking, you should consider the value of having cash in your bank accounts versus the theoretical value of stock increasing. Think about why you want to liquidate your shares. It might be worth it if you have a specific reason, such as paying for a wedding or diversifying your holdings. 

However, if you think the value will continue to increase, holding off selling could result in better financial gains. Pay attention to the market’s news to determine the right time to sell.

Summing up

Selling shares and stock from privately held companies might be trickier than public shares, but it’s not impossible. As with any transactions, consult your financial advisor and consider whether it is the best time to sell or whether you’ll benefit by waiting for the value to increase. 

Frequently asked questions

Can you sell shares without a broker? 

You can sell privately traded with or without a broker. A broker may look after your best interests and help you find a buyer offering a reasonable price. However, you can also use brokerage platforms to buy and sell shares with accredited investors. 

Can you sell shares anytime?

With privately held stocks, you can sell at a time that suits you. However, you will need permission from the issuing company or wait for them to host a buy-back program before selling. Often, if you have a valid financial reason to sell, the issuing company will approve.

How to Evaluate a Business Before Buying

There are a few key things to look at when evaluating a business before buying it. The first is the financial health of the business. This includes looking at things like revenue, expenses, profit margins, and cash flow statements.

The second is the business’s competitive landscape. This means looking at things like the number and strength of competitors, the market share of the business, and the overall industry trends.

Finally, you’ll want to look at the management team of the business. This includes looking at the experience and track record of the team, as well as their ability to execute a plan.

I’ve been an entrepreneur for over a decade now, and have built and sold a number of content sites and media properties, such as the Website Investing publication (post on Indiehackers) which became the investing.io community.

This year, I launched a new substack publication about alternative assets at alts.substack.com, along with a Discord community, as I wanted to discuss more than online business asset classes, such as crypto and NFTs.

I soon realized that to really have an impact with my newsletter, I needed to get it to hundreds of thousands of subscribers, even aiming for a million. 

But as a bootstrapper at heart, I didn’t want to raise 7 figures of investment to spend on acquiring emails. 

I was searching for a different approach when Blake Hutchinson, the CEO of Flippa, reached out. He asked whether I would be interested to continue writing the newsletter and building the community for Flippa, rather than for myself.

Would I be interested in being acquired by the number 1 marketplace for buying and selling online businesses, with by far the biggest investor community in the space?

It was an immediate yes.

I’ve joined Flippa as Director, Investor Community where I’ll be building out the biggest alternative asset investor community. It’s called Alts by Flippa.

We will be adding channels in the Discord community for investors interested in acquiring ecommerce / FBA, apps and other assets on the Flippa marketplace. And we will be adding a private area in the community where we drop online businesses before they hit the Flippa marketplace.

Subscribe to the Alts by Flippa newsletter at alts.substack.com and come join the Discord community to discuss investing in alternative assets, from content sites, to crypto to collectibles. 

Hear from Richard about his thoughts on NFTs and whether he thinks they’re a fad or here to stay.

The returns on the former are easier to calculate as your sales figures and expenses are clearly identifiable. To get to the final figure, all you need is:

• Find the net difference between your sales and expenses.
• Divide the result with your expenses

However, calculating website investing returns of non-ecommerce sites can be tricky. 

Assuming that you’re here for the same, here’s what to consider while determining your site’s rate of return.

Read on.

1. Identify Your Objectives

The rate of return depends heavily on key aspects, such as traffic, target visitors, qualified leads, and loyal customers. Each aspect is interlinked with your ultimate goal, i.e., optimized returns.   

The clarity of objective helps your website fulfill your needs. Say, you have a passive income blog, and its purpose is to garner more visitors and engagement, then you have to focus on driving traffic to your website. 

Instead of directly selling your product or services, you’re more interested in maintaining a strong presence on search engines. For eCommerce websites, more sales is the primary objective.

Determine where you thrive and where the website needs additional value or has disadvantages. There is no one size fits all approach to investing in websites. There are plenty of strategies that work. 

Here are some that are my favorite strategies for website investing:

• Acquiring for yield: Acquiring a website that produces strong cash flow and has low overhead. The site requires limited time and maintenance. You simply make a guess on your rate of return if you were to do nothing with the site and let it produce its cash flow. This is the most common strategy if you are looking for a sound passive income idea.
  
  
• Distressed investing: In this instance, you are looking for opportunities where a site has struggled or gone completely dormant. The technology could be sound but the website was improperly managed. 
  
  
• Buy, Fix and Flip: A buy, fix and flip situation is where you provide some sort of value-add that the site does not already have. That may be a source of attracting new customers or leads or it may be a completely new revenue source. Either way you position the site for growth right away with line of sight for a potential sale down the road. 

Each of these strategies would have completely different risk profiles. With varying risk profiles, varying opportunities for financial return. 

Website Investing Returns and Traffic

It’s obvious, website investing returns would be higher for high-ranking sites as they’re getting higher traffic and unique visitors every day. 

This, in return, paves the way for more revenue through digital ads. 

Websites like YouTube and Wikipedia, and Twitter have the highest monthly traffic, which is why they’re ideal for brand marketing. Also, high-scoring traffic sites can penetrate any market, whether it’s heavily populated or unexplored. 

They can earn in excess of $5-$10 for every 1,000 views on AdSense, which may seem cheap. 

But when you tap into unexplored markets, you can extract immediate value with revenues topping $50+ per 1,000 page views.

2. Check Your Website’s Ability to Convert

Website investing returns rely on its purpose. It also considers these:

• Quality of CTA and Sales Funnel
• Conversion rate
• Closing rate

Call to Action and Sales Funnel

You’ll agree to it; every website has a purpose, but most of them don’t show off. Your site is poor if it doesn’t feature Call to Action (CTA). This can be anything from subscription/signup forms to phone calls, email list sign-ups, or product sales. 

These CTAs, when responded in the desired manner, are considered to pass through your sales funnel. This is an important factor to consider while determining a website investing rate of return .

Conversion Rate

Conversion rate is an easier way to quantify your site’s performance; how good it is in transforming leads into customers. On average, only two to five percent of visitors actually turn into leads, which is roughly about 40 leads per 1000 monthly views. 

That’s also crucial in assessing your site’s rate of return.

Closing Rate

You may succeed in converting visitors into leads, but some tend to move away before you guide them down to the last phase. It totally depends on your sales skills to optimize closing deals. Sites with prompt responses and alternatives often get more customers than others. 

The ability to close the deals quickly adds up to the rate of return. Meaning, it’ll be more valuable for your buyers. 

3. Determine the Cost of Your Website

Firstly, calculate the total cost of generating the website in a way that you can determine the investing returns. Secondly, estimate the average lifespan of your web design. This, too, will differ based on the nature of your site.

The average life of design is two years and seven months. 

So if, for example, your design costs $10,000 and it’s estimated lifespan is two and a half years, the yearly cost would be $4000.

4. Calculate Client Value

This part deals with your close rate, and it’s a little bit technical, but let’s carry on.

• Go back to the closed ratio (closing rate or your website) and see how many clients you have generated in the year. 
  
  
• Now extract the yearly sales value from your financials and divide it by the number of clients. 
  
  
• Suppose you got ten clients in the year, and your sales reached $6000. The value per client will be $600. 
  
  
• Now, consider your website’s lifetime, which is around 2.5 years (as explained above). Multiply it with the value per client. 
  
  
• This means the lifetime value of one client will be $1,500 (600*2.5).

5. Determine the Website Investing Returns

Finally, if each client’s lifetime value is $1,500, the value of the entire lot of 10 clients will be $15,000 (1500*10). 

This means you can pay the website cost in eight months. (10,000/15,000*12). The yearly ROI is $15,000, and the monthly value is $1,250.

Conclusion

In this post, we did our best to explain the process as easy as we could. However, do keep in mind the exact formula will differ according to the nature of your website. 

An accurate evaluation will help generate more precise figures and determine the exact investing returns for your website.

In Part 1 of this series, we talked about a few tips we can learn from digital investor Eric Porat. The main ideas to take away from the previous section are:

1. Target Niche Markets

1. Poor SEO and/or UX is a Sign of Viability

1. Digital Appreciation Takes Time

For our second chapter here, an important starting point is the fact that experienced digital investors like Eric Porat repeatedly acquire, build, and grow profitable websites by practicing proven methods and time-tested processes. It’s not catching lightning in a bottle. It takes time, effort, and careful, careful market and traffic analysis.

So with that in mind, let’s move on with a few more tips and tricks we’ve gleaned from Eric Porat.

Invest In Sites with Income Diversification Potential

One of the main reasons why investing in websites is such a great option is that there are a wide variety of ways you can make money from them. For example, you can use Google Ads or other ad networks, create sponsored content for brands, selling digital products, promote affiliate merchandise, sell via dropshipping, or add a shop to your site and sell physical merchandise directly. 

Best of all, you can do all of the above at the same time!

The best thing about income diversification is it doesn’t just increase your monthly income as you grow the site, it dramatically improves the overall value of your website when you go out to sell it. The more methods in which a site can generate income, the more attractive it is to any potential buyers.

The Questions

There are a few key questions we need to ask ourselves concerning making digital investments. Here are some of them.

How Old is the Site?

A site’s age is a crucial metric, and you shouldn’t purchase without taking it into account. Domain age is a major Google Search ranking factor. The older a site is, the faster it will rank for any given keyword. 

Secondly, the older a site is, the more footprints it has around the web. Things such as brand mentions, backlinks, indexed pages, and more. These are valuable tools you can put to use to grow your site, even if they’re lying dormant. As a general rule, you should attempt to look for sites that are at least one or two years old, and the older the better. Any domain that is less than a year old you should steer very clear of unless there’s something extremely special about it.

When Eric Porat built his first website from scratch in 2005, it took him 3 years to grow it to 70,000 visitors per month and sell it off. Don’t make the same mistake. Buy sites that are aged.

Is it a Long-Term Business?

It goes without saying that if the site is based on a fad or otherwise temporary market, it’s a bad investment. That said, it can be difficult to determine the longevity of a project at first glance.

Whether you want to invest in an affiliate site, eCommerce store, a blog, or something else, make sure it generates revenue from what the industry likes to call “evergreen” sources. A great way to do that is instead of product-focused sites, scan the industry for sites that are based around solving specific problems.

For example, one of Eric Porat’s most successful ventures, which we mentioned in Part 1, was an e-commerce technology project that used a web crawler to automatically scan thousands of brands’ websites, find products that were on discount, and then link to them with affiliate links. Porat sold this project for a massive sum two years after it went live.

Has the Site Been Sold Before?

Are you buying the site from its original owner or another investor like you? Sites that have been bought and sold multiple times, for one, are more likely to have a flawed core concept. Another factor at play is that these sites are more likely to have used sketchy, or “blackhat” SEO techniques and could be blacklisted without warning, 

Is the Owner Cooperative?

Just like when you’re buying a car, an uncooperative or shady owner is a bad sign. You need to gather as much information about your potential investment as possible, and you can’t do that without the owner’s cooperation.

More importantly, an uncooperative owner usually has something to hide. 

Most sellers are happy to share the detailed history of their site, things that have worked for them and things that haven’t, their recommendations for the future, and so on. Eric Porat and other successful digital investors would all advise that if an owner is acting sketchy, then it’s a sign that the site itself is sketchy. 

Whether that means blackhat SEO techniques have been used or something about the UX or content isn’t what it appears… if a seller is being difficult, be wary.

Should You Be Interested in the Content?

Short answer: it depends. Eric Porat has bought and sold dozens of sites in niches he didn’t care about at all, but his long term projects, like GeoIQ, a web-based analytical platform offering real-time analysis for advertisers to help them track and optimize their media buying campaigns, are all in niches he is passionate about.

If you’re looking to flip, there’s no need to be picky about your topics, at least from an interest level perspective. Just pick sites that are viable and have growth potential. If you want to work on a project for years and years and potentially own it indefinitely, then having some personal interest in the content will be helpful.

Does the Site Have Diverse and Steady Traffic?

Traffic is the life-blood of any website. Without stable and diverse traffic, no site can stay alive for long. In order to invest in a smart way, you have to closely monitor the traffic trends of any site you want to purchase. At least check out the Google Analytics (GA) reports for the last 12 months, if not older.

Is there an upward, a downward, or a stable trend to the site’s traffic? Is it going up one month and down another? A viable site is one that has an upward trend, or at the very least one that is stable. This proves that the site is acquiring traffic from stable sources. Having stability as a launchpad is paramount, because it gives you the legroom to plan ahead.

If your site is already leaking visitors, you’ll be so focused on patching up holes in the sinking ship that you won’t have time to row forward.

You need a stable, diverse visitor base right out of the gate to move forward and improve on all the lacking factors that you want to improve on, whether it’s SEO, design, or branding.

Finally…

Be Money Minded!

When you buy a site, Eric Porat and others would always tell you to make sure you’re aware of the sale potential, so you can negotiate a solid price. A great general formula to use to find out viable sale prices is this:

Multiply the site’s average monthly profit for the year with a number between 20-50 (use a higher number depending on the niche, income, traffic, assets, etc.)

This means if a site is making a profit of $500/month currently, if it’s a viable project then eventually you can probably sell it for at least $10,000 or more. Of course, this is variable based on how optimized the project currently is, but it’s a good general starting point.

Now get out there and start investing!

Internet mogul Eric Porat started out as a nobody. He built a website from the ground up in 2005… and it had absolutely no traffic. The place was a ghost town. 

Fast forward three years and Porat had grown that website to more than 70,000 visits per month. Shortly after, he received an offer to sell it. It was the first and last website he ever built, but far from the last he sold.

Since then, Eric Porat has bought and sold over 50 websites for more than $600,000.

There’s a quote Eric Porat likes from Robert Kiyosaki: “The rich invest their money and spend what is left. The poor spend their money and invest what is left.” It’s pretty simple. The digital real estate market is the new frontier of investment. The difference between physical real estate and digital real estate is, there’s no shortage of land and no dearth of fertility, at least not for the savvy and stalwart.

While you can, of course, build digital assets even without capital, investing time like Eric Porat did into creating sites from scratch, growing them slowly over time, and selling them, the better route is to invest some time and money into the acquisition of promising online sites with a moderate amount of traffic already and then grow them yourself to flip them (as we all know here at Flippa).

Digital investment in websites can be anything from affiliate sites to eCommerce stores, as well as blogs, magazines, and more. While there are plenty of other digital investments, like domain names, mobile apps, and digital products, websites are by far the most popular type of digital asset. The main reason that websites are the most popular type of digital assets (and generally the most lucrative for investment) is because they generally act as the central platform that integrates all the other types of digital assets on the internet. You all probably know this, as a Flippa reader, but it helps to remember the fundamentals.

Websites are also one of the most versatile forms of digital (or physical) assets. Like Eric Porat has done for years, you can turn a website into just about anything you’d like. A business, a marketplace, a magazine, a streaming site, whatever.

What We Can Learn from Eric Porat

It helps to think of buying and selling websites as a close cousin of the conventional real estate investment model that we all know. From interviews and online documentation, Eric Porat has revealed that he sees this as an apt comparison. From a basic perspective, instead of buying a piece of underutilized land, you simply buy a website that’s not fully utilizing its potential and can be made more profitable. Then, like a real estate developer, you invest money in improving various aspects of the site, such as content, branding, design, SEO, etc. 

The website investment market is a lucrative investment opportunity, for myriad reasons. For one, it’s an exponentially growing market. A recent study showed that global Internet penetration is near 57%. In other words, 43% of the world hasn’t even gotten on the Internet yet! 

This is Where the Tips and Tricks Come into Play.

The fast growth and new members of the Internet demographic mean that websites that provide information and solve problems are rapidly growing in value.

If you can find a site that solves a problem or has the potential to get a stranglehold on a certain information demographic or trend, you’re in luck. 

The trick is to understand what the site is doing right and what it’s doing wrong. If the concept is wrong, there’s no point in investing. If the design, SEO, and branding are what’s wrong… well then, all it’ll take is a bit of grease to get those cogs turning and start raking in the visitors.

According to Eric Porat, there are literally hundreds, if not thousands of sites online that have a stellar concept, but 99% of these aren’t delivering their product well, whether the said product is information (i.e. a magazine), a community (i.e. a social site), or a digital marketplace.

Target Niches

Many people don’t realize how niche some lucrative sites can be. For instance, a site called SendCatFacts.com, which only sends facts about cats to subscribers via email and SMS, sold on Flippa for $50,000! Yes, you heard that right. $50,000! 

If a site about cat facts can sell for $50,000, think about all the weird and exotic niches that could prove profitable. The possibilities are endless. That’s why niche targeting is so important. 

Eric Porat has always targeted niches in the market, with both his website investments and businesses. For example, one of his projects, launched back in 2018, was an e-commerce technology project with a brilliant core concept; a web crawler that would automatically scan thousands of brands’ websites, find products that were on discount and then link to them with affiliate links. 

At first glance, the site looked like an ordinary e-commerce website, but in fact, it was a fully automated platform that was researching, updating, and listing discounted products. In September 2020, after less than two years, Porat sold this project for a large, undisclosed sum.

Hit unique ideas like this. Find gaps in the market. Find a niche, and even if it’s obscure and inane, like a website about cats, as long as there’s no competition, there’s a good chance you can grow and expand it into a profitable asset over time.

Let’s go back to the real estate analogy. For example, some people might not like to live in the desert. Some people might not like the mountains, some might not like the beach, some might not like cities, some might not like small towns. But there is a market for each of those locales. Some people on AirBNB are even renting out treehouses for hundreds of dollars a night. Treehouses! 

The trouble with real estate investment is that it’s limited to a physical location. The Internet is everywhere and anywhere all at once. There is no limit. So niche markets aren’t something to shy away from. Everyone looking for that niche will find you if you make sure to optimize your SEO. That brings us to the next point.

SEO is the Key

Most business websites and blogs, even ones with excellent concepts, large followings, and a dedicated, professional team, aren’t well optimized for search engines whatsoever, and frequently have design detriments as well. SEO and UX are perhaps the most common faults in website success. 

So, look for sites with poor SEO and UX that are doing everything else right. Having an idea, starting a site, and publishing content is easy in the 21st century. Even a moron can get a site live with WordPress. SEO and UX, however, are technical skills that take training to learn. Most people don’t have this training or experience. Oftentimes, Eric Porat has found that simple SEO steps can turn a ghost town website into one landing 50,000 unique visitors or more each month with little effort. 

The one thing it will always take, however, is TIME.

It Takes Time

This is the single biggest mistake that website entrepreneurs make. SEO is a long game. Lucky for you, as an investor, you’ve already thrown in your chips and the site likely has already been live for some time, so you just have to have the grit to hold on. That said, if the previous owner wasn’t doing anything with SEO, maybe the domain has aged, but not much other progress has been made. 

Organic search traffic plays a key role in driving visitors to a site, but even if your site has excellent, regularly produced content and high-authority backlinks, entering Google’s top ten results for a competitive keyword takes time. Lots of time.

A study by SEO tool Ahrefs revealed that almost 60% of every page ranking in Google’s top 10 is more than three years old. 

That means you need to be ready to sit tight, and make steady, moderate adjustments and improvements over time. 

Read Part 2 of Website Investment Tips from Successful Digital Entrepreneur Eric Porat

Domain investors always say that you make money when you buy a domain, rather than when you actually end up selling. The same is the case for website investing. 

How to Search

Look for established sites on Flippa using this search string. Let’s break this down:

1 – Asset Type: Website – Established Site

This means that the site is making money rather than a starter site that is yet to generate revenue. 

2 – Website Type: Content – Blog / Review

For us, content sites are either product review sites or blogs; they are not directory/lead generation sites.

3 – Includes only: Verified Traffic

The Flippa integration with Google Analytics (GA) is great as it means that you don’t have to rely on what a seller reports. I only look at sites where the seller has verified their traffic. However, if interested, you also have to get access to GA to select the organic traffic segment. Content sites are valuable because they rank in Google and bring in organic traffic, often considered to have the highest buying intent. A site that has 10K page views a month sounds good, unless you find out that organic search traffic is only 100 visits a month from that.

4 – Monthly Profit: > $500

This is the level that we class as an established site.

Other Factors

Site age is something to consider, however I’m more interested in the organic search trend than the amount of time the site has been around, especially if you can buy at a good price.

What is Good Value?

There is an interesting post by Ophelie Lechat on Flippa on 5 popular methods for valuing a website where #2 revenue multiple is the traditional way of valuing a revenue-generating site. The #4 way ‘reverse engineering cost’ should be used to value a starter site. And there is a good video by Ahrefs on how to buy an undervalued website on Flippa, in terms of its link profile, technical SEO issues, under optimized anchors, and competing domains: 

For me, good value means picking up websites for under 24x average monthly revenue. You may be thinking, this is insanely low, but this is where multiples were at when I first started selling sites – in fact, my first exit back in 2016 got me a 23x multiple. 

Indeed, on the Invest Like A Boss podcast, Blake Hutchinson, the CEO of Flippa, stated that the average multiple on Flippa is indeed 23x.

What Influences Valuation?

For me, the search traffic trend is the primary factor for whether you’re prepared to pay more or less for a site. If the search traffic is trending up, you should be happy to pay more. On the flip side, if traffic is trending down, you should be able to negotiate a much lower multiple by being happy to walk away. 

Similarly, if a site is dependent on a few pages for the majority of its search traffic, then this is more risk and less valuable than a site with good traffic distribution. 

A site that has diverse income sources should be valued more highly, with recurring revenue (such as with software review affiliate sites) being the best situation. With MRR income, even if you lose all traffic, you will keep being paid out for months or even years to come for low churn services such as web hosting. 

And finally, the quality of the backlink profile should influence valuation – if a site is being propped up primarily from homepage PBN links then this should be considered less valuable than a site that has only done ‘whitehat outreach’.

Conclusion

Once you look at enough listings and lookup enough sites in Ahrefs, you will be able to quickly come to understand what a fair market value is and whether the asking price is under or over that amount. First-time sellers often do now know how much their site is actually worth and can leave money on the table by accepting lower offers from the allure of upfront cold hard cash.

Further Reading

• How to Generate Upside From Acquiring Established Sites
• How to Generate ROI from Buying a Starter Site
• How To Generate ROI by Building out an Aged Domain

This is the third option for investors (which I set out here) where you buy a domain that already has a link profile (as it used to have a website on it) and use that authority to quickly rank new content. I’m currently doing this with a couple of aged domains that were caught at Godaddy Auctions by ODYS. 

In this article I asked two experts two questions.

The Experts:

1. Alex, the founder of ODYS, the private SEO domain marketplace
   
   
2. Adam, the co-founder of Niche Website Builders who have premium expired domain content packages

What is an aged domain?

First up let’s define what we mean by an aged domain / expired domain.

Alex from ODYS:

Aged domains are one of the greatest business opportunities for the current state of SEO based online business models. Why go with a brand new domain and spend 4-5 figures on links, building everything from scratch, when you can kick-start your venture with one that is already juiced up by almost impossible to get links? 

Pick a great brandable or catchy name or go after niche relevant dictionary words when shopping for the perfect pre-owned domain and and you’re not only investing into a semi-developed piece of online real estate (powered by links, traffic and old authority), but you’re also buying a very liquid asset that can be later flipped for a profit.  

Domains are assets. SEO powered pre-owned/aged domains are turbo-charged assets. The industry is booming due to more business-owners and affiliate marketers realizing that a combination of a good name + decent SEO behind it is not only a ‘lottery ticket’, but a solid business model and investment vehicle.

Adam from Niche Website Builders:

There are 2 different types of premium expired domains:

1. Value based on brand name.

2. Value based on history (link profile, PR, SEO).

As SEO’s we are predominantly interested in No. 2. But what does a good premium expired domain look like? There are a variety of metrics we can look at. These include Ahrefs URL rating (UR) and domain rating (DR), Majestic trust flow (TF) and citation flow (CF) and Moz’s page authority (PA) and domain authority (DA). It’s important to ensure that these metrics line up (essentially, the higher the better). However, this only tells half the story. Metrics can be manipulated and inflated. Therefore it’s imperative to check the history of the site via archive.org. You are looking for a number of things here:

1. There is no evidence of spam.

2. The niche is relevant to what you are wanting to repurpose too.

3. Has the site ever been hacked?

Generally, you want to see a genuine business or blog that has been around for years and was once a strong player within the specific niche. There are a number of other aspects to look at which include: are the backlinks strong and relevant, does the anchor text look natural and branded, do the majority of the links point to the home page etc. 

One thing that we always look for – everything above needs to line up. It’s hard to understand exactly how much power and weight each aspect above has, so if there are any red flags, we walk away.

How to generate ROI from expired domains

Next let’s talk about how you can make money by investing in aged domains.

Adam from Niche Website Builders:

Assuming you have completed all of the due diligence checks and you are happy that you’re working with a solid domain, it’s now time to create the site. It’s becoming apparent that while you can have success creating a site in an unrelated niche to its past history, you have a much higher chance at longevity if you keep the relevance tight. 

Else you run the risk of fast growth, and then fast decline. An example of this would be aecinfo.org in the golf niche. Previously it used to be a site about America’s Emerging Companies and now it is a golf review site. Great growth initially:

Once you have formulated a plan to recreate the site around it’s past history you need setup the site in WordPress. It’s important that you recreate any pages that have strong links pointing to them (or redirect them to relevant pages). Not everything should be redirected to the homepage. In the extreme, this could lead Google to identity your homepage as a soft 404. 

Now you have your site up, you need to choose what keywords to target. The strength of the domain will determine the competitiveness of the terms to target. My approach with expired domains is to find low hanging fruit within the niche and create between 100-150k words of content (usually a 70/30 split between money and informational). 

As soon as you see the site gaining traction and Google likes the new repurposed domain, continue to add content and embark on a link building campaign to propel the site to authority status.

Alex from ODYS:

There are two approaches IHMO.

A) Beginner investor

1. Pick domains relevant to verticals that you’re already making money from or keen to learn everything about and become an expert in.

2. Content wise, cover the topics of interest in their entirety (this means loads of buying intent and informational content)

3. Don’t get too emotionally attached to super-profitable sites. Flip when you get the chance.

4. Keep re-investing, keep rolling the snowball.

B) Aggressive investor

1. Pick powerful, brandable domains in proven niches.

2. Completely outsource the content and site building part; aggresively go after 200k+ words sites (ideally 1 million+)

3. Don’t search for ROI in your first built site, keep re-investing to identify the UNICORNS.

4. Don’t fully optimize the site. Always leave space for improvement to make flipping attractive to the buyer. Rinse and repeat.

Conclusion

With a starter site, you already have the framework for a successful site, in terms of existing keyword research, site structure and content. With an aged domain, you need to be able to put this plan together yourself or use an expert provider such as ODYS or Niche Website Builders. There’s more work involved, and more guesswork of when a site will start to take off. Below is a domain I got from ODYS that was built by Hekkup back in May. 

It got 50K words and only took 2 months to take off. This is why I’ll never build out on an brand new site again.