Evocative Q&A with Geosign Founder Tim Nye (Read and Learn)

Tim built his media company from nothing  and has a great deal of respect for the power of domain names...  Learn from the man who has himself learned a great deal.

BUSINESS

FS: What sorts of assets are you and your new investors going to buy (directions you are going to expand into?)

TN: Well that’s not a simple question. Geosign is a media company and we have many different silos. I think our strategy generally is to look at three types of investments. Those that are identical to our current business, such as buying more high quality domains, or direct navigation portfolios where we can immediately monetize (hopefully better). Also, we are looking at areas which complement our current business. One example which is closing shortly is a local search partner with distribution that complements Truelocal.com. Finally, we are looking at new innovative uses of technology that we feel has potential for our entire network. An example of this Ontogenix, which optimizes landing pages by providing AI like matching. For example, if you type in “smart creative child’ into Ontogenix, it returns links for chess, lego, ping pong etc. so imagine how relevance will greatly improve across all sites. Generally we will be investing in areas that improve user experience across our online properties while allowing for quality advertiser opportunities. Over the last two months we have assembled an acquisition pipeline with 50-60 quality targets. We’re looking at deals that complement our existing business model at reasonable valuations.

FS: You’ve met a lot of investors over the past year. Can you some color as to the amount of investment money presently finding its way into the space. Is it a trickle or a flood in your opinion. Also do you see increasing/decreasing, do the investors (those valuing the LATimes at 5B for example) ‘get this space’ yet (paid-search/domains)?

TN: There is definitely a lot of pent up interest to get into this space. The large private equity firms are seeing money being put to work, and want to be part of it, and I see this demand increasing. The challenge for the typical domainer is that the investors want to invest in companies and not portfolios. A large PE firm is not going to give 100M to a guy who works in his basement in his underwear no matter how clean their portfolio is. I also don’t think they really get the underlying brand value. It’s definitely getting better, but it’s still not a mature investing community. Multiples are understood, but the typos and adult, and trademark issues are scaring people a little. I had a funny call with one investor. I was talking to one firm that will remain nameless who was talking all about their domain expertise (I was getting excited) and it turned out they were using the term ‘domain’ to mean an area of expertise which in this case was technology – they had invested in several software firm that were not even internet driven. I think there’s technology, then the internet, and then domains. We met with most of the large US based private equity firms and there were varying degrees of interest and expertise. It’s an emerging market with few large public company comparables, so it is definitely challenging for the traditional private equity firms. That being said, Geosign garnered a tremendous amount of interest and had a very competitive process.

FS: What ultimately made you decide to pick this investor over another potential investor?

TN: It was very close. There were some very large players and it was very hard to turn anyone down. In the end, it really comes down to the final term sheet being offered and your comfort with the firm you are working with – are they going to stick to the term sheet in the end?. We had a set of terms and conditions and a valuation that we wanted. I was 100% shareholder, so I was really nervous about losing control of decision through restrictive covenants, or being unable to make other investments outside of technology. American Capital was very straight up on giving us the terms and valuation we wanted and also proved to us that they shared the same vision as we did, and had the financial strength to stand behind this vision. We called it the Tim’s BFE (big empire) strategy. I forget what the F stands for :)

FS: How do you view the future potential of generic domain names (from 2007 levels)?

TN: I have mixed feeling about the future. I think that there is a lot of crap out there. Adult domains, typos of trademarks, trademarked domains, and even generic typos IMHO are hurting the market at least from attracting respect and money. There is a place for these domains, but I feel these will always be held by the smaller private investors. Generic domain names I think are starting to get real respect, but only in the .com space. I am not a big fan of .net, .org, or even the country domains, although I think .co.uk and .de are gaining ground. When I see a .ca domain on a flyer, I think small-term local firm. I think the value of good generic (one and two word; maybe 3) domains are going to continue to rise, but not at some of the meteoric pace that is predicted. There is still some Youtube silliness going out there. Just because Youtube sold for 1.6B doesn’t mean that _____tube is worth $50,000. I have also seen people asking huge amounts for domains that while great domains don’t represent a huge market, and never will. I don’t think the multiples on portfolios will increase. These seem to be steady, but I do think that you will see more and more six figure and seven figure domains being bought. There is so much not reported that it’s not easy to see the trend.

FS: It’s been seven years since you started Geosign and we’ve seen a great deal of evolution in online advertising and paid search. In a [big] breath, what changes can you envision in the next seven years? How do you see it unfolding?

TN: Well, first off, I know someone is going to pull up this article in seven years and either call me an idiot or a Nostradamus, so maybe I should make some wild predictions about Google letting one of their domains drop (no wait that already happened). One thing I’ve come to learn is that although seven years seems like forever, so little really changes. I generally think that the market is going to consolidate in that will be 4-5 companies doing the infrastructure register, tasting, selling, parking etc. but at the same time, I think the market is going to become much, much larger for small 1-20 person companies that take a single domain and build a business out of it, especially in local. I think that the next wave of home based businesses will be sites on niche topics that people are passionate about. I think the online advertising market will mature, and I think this will benefit the publisher. I think that the number of pages online will eclipse the demand from users, so I think that traffic will start become more and more valuable, as consumers become more discerning. Of course the search engines need to clean up their engines a bit too. I think that over time the ‘content is king’ [argument] will win but in seven years there will still be lots of talk about how the search engines need to improve.

FS: How do you see that impacting domains?

TN: I think traffic will become more valuable certainly, but I think the people with the money are going to start setting minimum guidelines like I don’t want my ad on any site which has pop-ups, or doesn’t follow some form of anti-SPAM initiative. The domainers who embrace these rules will find it easier to make money, but the guys who don’t will still make money but will never be able to sell their portfolios, and may see the value decline, but if you own ‘greatdomain.com’ you’ll always do OK.

PERSONAL

FS: You’re a serial entrepreneur who’s seen success then failure, then success. You’ve built a great company. Can you describe the emotion/feeling in reaching this present level? And how it’s shaped who you’ve become?

TN: Can I lay down on a couch while I answer this? Serious though, I’m not sure it’s sunk it in yet. I think you need to ask me again in three months. It certainly is comforting for me to know that my family and kids and many generations after that are taken care of. It was also nice to finally take care of all those people who invested in me in the past and lost money. It’s a little scary in that I am fairly reclusive fellow and enjoy working in relative anonymity. I expect that to change. I don’t expect to become a legend like Yun Ye or Frank Schilling :) but I suspect Geosign will be on the map now. I was a real geek in high school (chess club, computer club, dungeon master…) When I was starting to earn bug bucks, part of me wanted to call back every girl who turned me down for a date in high school and say “Big Mistake” – kind of like Julia Roberts in Pretty Woman when they wouldn’t let her buy any clothes, but them all turning me down probably motivated me even more, so maybe I owe them a thank you? In terms of how it has shaped me – I don’t think this deal has shaped me as much as Geosign as a whole has. I had four much less successful businesses, so I certainly appreciate how blessed I am. I call this my 20 year overnight success, so while I always believed if I kept swinging big, I would hit a home run, I must admit that its nice to final see the home run record and in the record books. No one can take that away from me. Another benefit is that people actually listen to ideas now, and I can afford to try a whole bunch of ideas which otherwise I might not have, so I think the money has somewhat recharged me in that not only do I have the resources to grow Geosign, but people will listen to me now.

FS: If you could do one thing over, change one thing, what would it be?

TN: I’ve made so many mistakes over my last twenty years, but that is also what has defined me, so I think if I didn’t make these mistakes, I wouldn’t be who I am. I think though that the one thing I would do differently is to believe in myself more and not listen to the experts. I made a lot of decisions because people told me that is what a successful person would do, or this is what a big company would do. I ended up listen to a lot of VC’s who may have meant well, but I often went against my better judgment because I was young and inexperienced. I realized that my choice was the right one. I missed the first internet bubble because of this, and almost had a nervous breakdown over it all.

FS: Can you give any advice to the little guy just starting out who wants to be Tim Nye (aspires to be you)?

TN: First off, I heard recently that someone said they wanted to be just like me, and it blew me away, because until recently, I used to always beat myself up about how long it was taking me to get to this point. I think the best advice I can give someone is to never give up and believe in yourself and take every setback as an opportunity. I like to tell people that I’ve lost more money than most people will every make, and it’s true. I could write an ebook on how to lose a lot of money with a winning idea. A best-seller. The thing is, I learned something from each, and each time I got a little closer. There were dark times for sure, but they pass. It’s like divorce. It’s not so much of a stigma anymore because so many people are getting divorced. When my first business failed, I used to think that I was the only one who had ever failed and it was rough, but then when I read a book about Lincoln, Edison, and Ford being some of the biggest failures in US history, I didn’t feel so bad. Another thing is don’t do it just for the money. You have to love what you are doing, because I can tell you, many people will tell you you’re crazy, should get a real job, or that your idea will never succeed, and if you’re not 100% committed and enjoying it, it will consume you. I got into a business that I thought would be lucrative but was not really something I liked nor knew a lot about, and I hated it, and lost a lot of money.

FS: What are you most looking forward to buying with the money?

TN: Actually, I am involved in a venture in the renewable energy field that needs a lot of capitalization, and I was afraid we would have to bring in a partner, and this deal allows me to fund this project, so that is very exciting. Plus I lost 40 pounds over the last 15 months, and I said if I ever kept the weight off (which I have) I would buy a nice car, so maybe a Lamborghini Murcielago, but this is a big change for me. I drive a Toyota Prius now.

FS: How does Mrs. Nye feel about this shift in your business and life? Any special rewards for the lady who helped you get here (my wife will want an example for me to follow)?

TN: You would think so, but there really isn’t anything that either of us crave for that we don’t already have. Other than having a lot more accountants and lawyers, and the peace of mind knowing that you are secure for life (which is huge of course) , money isn’t changing us much. I think Lynda wants me to slow down a little, so I am going to try and leave the Blackberry at home more often. It really is very addictive, but I have a great President in Ted Hastings, so I don’t feel as pressured to be online 24x7 as much. My wife and I do like the private plane, so maybe if anything, the money means never having to take off your shoes.

FS: Testify brother; testify.

Comments

[Sahar Sarid]

Great interview Franky, couldn't stop reading. Thanks!

***FS*** You are welcome ;)

[AhmedF]

Great interview - GeoSign is one of my favorite companies on the net [even where we compete] :)

[Frank Michlick]

Great interview Tim & Frank - did you actually hold it on the phone and type it up? And great news, too - congratulations to Geosign and American Capital.

[Drewbert]

Thanks for the plug, dude!

[Colin Pape]

Great interview Frank! Thanks so much for putting it together and posting it...

Geosign has definitely been an inspiration for me, and after reading this interview with Tim, it is even more so...

Thanks for the great advice Tim... Especially about believing in yourself and not listening to the experts... I find myself battling with this constantly, as I'm sure many other entrepreneurs do as well...

Looking forward to seeing what you are able to achieve - in both the domain and renewable energy fields...

Congratulations on putting together such an impressive company while still remaining humble and down-to-earth...

All the best,

Colin

[Harvey Kaplan]

It's refreshing to see a company with a variety of business models all working nicely together and making money!

This company is good for our business and it
helps give some insight to those of us that want to develop our businesses beyond simply parking our names.

Keep up the good work Tim!

Thank's for the great interview Frank.

[Steve Morsa]

Nice interview...great info and insight.

Thank you both for your time and effort.

[Adamo]

"A large PE firm is not going to give 100M to a guy who works in his basement in his underwear no matter how clean their portfolio is."

What's so wrong about working in the basement in your underwear? As long as you have a great portfolio, as well as clean underwear (or visa versa as the case may be), I'm sure investors will still be interested, although it's probably wise to meet them in a suit the first time. :-) ...ps: Keep up the great blog Frank. Cheers

***FS*** working in my underwear right now.

[Vic]

Great interview and even greater advice, so truthfully and candidly disbursed.

Thanks for sharing it all, Tim and thanks for making the interview happen, Frank. (Not necessarily in that order :-))