By , August 5, 2010

Last night I completed the acquisition of the large-file transfer service This basically closes the loop on a process that began over a year ago, the first time I saw the website listed on Flippa.

I liked this website from the beginning as it fit my criteria for web acquisitions in nearly every way:

  • It was an online web service
  • It had an actual business model
  • It had cashflow
  • There were synergies to be had with my existing businesses and other web properties.

The only problem at the time was that in the aftermath of the Global Financial Crisis, ad rates came down so far that the website was running cashflow neutral to moderately negative. At the time I thought it would be easy enough to fix, all I had to do was find cheaper bandwidth, but try as I might, it turned out the owner had gotten himself about the best deal that could be had at the time.

My methodology dictates that the economics of a website or property need to work for me “as is” at the time of the purchase, that I can negotiate a price that yields a reasonable ROI based on no-growth or even moderate decline. That way any additional efficiencies I can bring to the operation result in an immediate lift that generate above-average returns.

So regretfully I took a pass, but I kept an eye on it and noticed that the whois record didn’t seem to change hands. So earlier this year I touched base with the owner and we talked back and forth. He floated the site for sale again a few weeks ago, this time there were no takers.

This time the service was back to being profitable, and the current datacenter has agreed to maintain his pricing on bandwidth after I takeover, so it’s a different ballgame now.

There are a few risks but I believe the risks posed do not threaten a permanent loss of capital, should they materialize. In other words, given the price I paid, the synergies I can bring together with it from my other web properties and businesses, I have a decent margin-of-safety. The return is adequate based on zero-growth, and above average if I can successfully grow the service.

Serendipitously, I read hours earlier that a much larger direct competitor, has just completed a Series D funding round of $15 million. Why they need a funding round is their business, because according their own numbers they should already be profitable, but I felt my investment thesis with FileSend has been mildly vindicated.

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