I’m writing this post in response to the news of the pending SEC investigation and shutting down of The Income Store. I felt I should post something for a few reasons:
- Partly to defend the industry and the alternative investment vehicle of investing in websites or online businesses.
- Because unfortunately, there are bad actors in every industry. But they don’t represent the whole industry.
- Also, because I am launching a company (Blackbird e-Ventures) that will help investors navigate and manage investments in this industry.
What is Website / Online Business Investment?
First, let me explain what this industry is for those who don’t know.
Definition: Investing in Websites or Online Businesses. Sourcing and purchasing existing websites/online businesses that are already profitable. Then either improving them to resell or holding them and growing them.
This is a relatively new idea. I first started hearing about it in 2016, but there are some articles online about people doing it back in 2014 or even 2011. I guess it has been happening for a while, but it has only really become a thing in recent years.
It is like the real estate industry, just well.. online.
I look at is as like the real estate industry. Let me give you an example. I used easy round numbers to make the point.
In the RE industry, there is an apartment building that makes $1,000 a month, but it’s in bad shape. The market values it at $200,000. You buy it and fix it up, so it is now worth $300,000 and has a monthly income of $2,000. You can either sell it or hold onto it and continue to receive $2,000 a month.
Same thing with investing in websites. you have an online property that makes $1,000 a month, but it can be improved. The market values it at $200,000. You buy it and fix it up, so it is now worth $300,000 and has a monthly income of $2,000. You can either sell it or hold onto it and continue to receive $2,000 a month.
Just like any investment, there is risk. For example, there could be a bubble, or you made a bad investment, or the market changes and no one wants your product or service, etc.
Now Let’s Talk About the Income Store
There has been some debate as to whether the company started out with good intentions or if they just spun out of control, but here is what they are being accused of by the Feds.
Essentially that they were running a “Ponzi scheme” where they were taking money from investors but using it to pay out other investors as well as other things instead of doing what they promised; to invest in profitable websites.
They also said in their marketing material that they would either buy or build a website for you. Building a new site that ranks and becomes profitable can be expensive and take time.
According to the SEC, the company and its founder “have knowingly or recklessly engaged … in a scheme to defraud investors and obtain money by means of materially false and misleading statements.” That’s a pretty strong statement.
They guaranteed a 20% return on all the money that an investor invested. It doesn’t matter what you invest in you can’t guarantee a profit. As soon as you do you put yourself in a position of having to provide that return at all costs. Even if outside forces make it impossible. Plus, apparently, they told investors that they would get a 20% return “to start.” Meaning it would get better!
In the case of TIS, this just wasn’t sustainable. According to the SEC, they had more than 500 investors that contributed 87.6 Million from January 2017 to October 2019. But their website revenue was only $9 million over this period. Not exactly 20%, right?
So allegedly in order to try and make ends meet, they used new investor money to pay out older investors. They then also borrowed more money to help fund payouts.
The SEC also accuses the founder of using funds from the investors for his personal home mortgage and private secondary-school tuition for his children.
The more I dig into the whole fiasco the uglier it gets. Yikes!
Lancaster Online shared the news yesterday. You can read more detail in their article: Feds accuse website-selling firm of $56M scam, force its Lancaster office to close
And the official SEC press release. SEC Obtains Emergency Asset Freeze, Charges Businessman With Operating a Ponzi-Like Scheme
It’s official the SEC has found that The Income Store was running as a Ponzi-Like Scheme. https://bbes.us/3adEG3y
As alleged, TGC falsely promised that it would use investors’ funds exclusively for expenses related to the investor’s website. In reality, as alleged, the sales were conducted through unregistered securities offerings, and TGC used new investors’ funds to pay investor returns, in Ponzi-like fashion, and to pay Courtright’s personal expenses, including his mortgage and private school tuitions for his family.”
Ethically Investing in Online Businesses
Now that I covered what went wrong with The Income Store. Let’s talk about an ethical way to leverage online businesses.
You could start your own website and online business. Like any business, there is a high failure rate. There are debates about the actual percentage but let’s just say a lot do. The idea of buying an online business that is already profitable means you then have a business that has already been successful.
It can also be looked at as an alternative investment vehicle. So, if you don’t want everything in stocks or real estate is too long of a play for you, etc. this type of investment could be a good option for you.
So What About My Company?
As I mentioned I’m launching a company that helps investors navigate this relatively new investment type as well as manage the business once the purchase is made.
Here’s how we operate:
- We work with investors to find an online business that fits their investment profile. How much they want to invest. What type of business they are comfortable with. What their risk level is.
- We use brokers to facilitate the purchase of the business.
- We operate as the management company for the investor.
- We split the profits.
- Each business owner may be different, so we work with them for how the agreement for the purchase looks.
- In some cases, we create an LLC where my company is part owner.
- In other cases, we are simply the management company and they pay us for our services.
- The agreement is stated in a legal contract that both the investor and my company sign.
- While we don’t guarantee a percentage return on your investment, because this would be impossible, we have years of experience and a track record with clients to support it. So we are able to handle everything, from day to day operations to growth strategies.
The Buying Online Businesses Industry is a Healthy Industry
Anyone that knows me has probably heard me talk about this over the last few years. (Hopefully not too much, HA.) I’ve been watching it for a while. There are lots of respectable people and companies out there.
Unfortunately, most industries have some bad actors. I mean have you ever heard the one, “Hey, I have some waterfront property you would be interested in Okefenokee.” It would be a shame if this one black spot hurt the whole industry. I believe it won’t.
I hope if you are interested in purchasing a website you’ll give me a shout. We’re launching a new site in the coming months. *Updated 4/20/2020. Check out our sister company Blackbird e-Ventures to learn about buying online businesses (Website investment).
If you’re interested in finding out what type of businesses are for sale, here’s a couple of highly respected brokers that we work with.
If you want to learn more about how to start buying sites yourself check out Jaryd Krause and his site Buying Online Businesses.