Recently over LinkedIn I found out that a company called Onfolio is doing a public offering. I’ve decided to reach out to their CEO Dominic Wells, and ask about their interesting business model.
As you will see in the interview, Dominic is making a full circle with this business venture. He started out years ago when he built a website making money from affiliate commissions. Then he sold websites that were built to make money from affiliate commissions. Also known as starter sites, or turnkey websites.
From starter sites to a holding company
After a successful spell with Human Proof Designs and selling turnkey websites, Dominic turned to the next logical step. Building Onfolio and managing websites for other website investors. This means you could have bought a website from any of the available platforms, and then let Dominic’s team handle it for you.
However, this leads to one of the risks with website investing. Sooner or later, anyone can hit a dud! It happened to me as well. In this article, I wrote how I once bought a website for $6375 and proceeded to invest $3800 into various marketing activities for that website. This website is now making a whopping $10 per month! Good thing I bought several other websites.
Diversification for website investors
Where my personal strategy is to handle several small websites and handle them with the help of webmaster.ninja software, Onfolio’s strategy is handling several big websites. And that’s another reason why I was super excited to do this interview!
Onfolio’s offer is essentially this. Gives us the money, and we will pay you quarterly dividends. This sound perfect, but as you will see from the interview, we also talk about a company that tried a very similar path that ended in disaster. Last year this company ended up in bankruptcy with owners facing jail time.
As always, business and life is a mixture of opportunity mixed with difficulty. It depends on what stage of career you are in, what you are looking for, and what you are capable of. Let’s get down to the nitty-gritty.
Interview with Dominic Wells
Thank you for doing this interview Dominic, hopefully, we can show everybody several opportunities that are available in our industry of website investing, management, and so on. You certainly tried and succeeded in several, so let’s start at the beginning.
Q: How did you make your first $1000 online?
Dominic Wells: I had made a few hundred dollars from various affiliate websites, but the first $1,000 came when I sold a small website on Flippa for exactly $1,000. It wasn’t making a lot of money, but it had 1,000 visitors per day, so I listed it on the off-chance somebody else would see the potential to monetize that traffic, and they did.
Q: At what point did you decide to commit seriously to doing this?
Dominic Wells: I was pretty committed from the beginning, but I think the first time I made $500 in a month, which was about 6 months in, was the first time I realized I could make a go of it. I think I said something along the lines of, “If I can make $500, I can make $1,000, and if I can make $1,000, I can make $10,000”.
Q: How has that grown into Human Proof Designs and can you tell us more about HPD?
Dominic Wells: HPD actually grew out of that first Flippa sale. After selling that site for $1,000, I wanted to do it again! So I spent a lot of time on Flippa trying to look for opportunities. One thing I noticed was a lot of people were buying low-quality “starter sites” that were effectively garbage. I realized that there was clearly demand for starter sites, and I should sell quality ones to compete with the garbage/scams that were already there.
Of course, it was hard for me to really demonstrate why my sites were better, when I was competing with people who were straight up lying. Instead, I started blogging at HumanProofDesigns.com so I could teach people the value of my sites and how to do internet marketing.
Over time, I grew HPD into a business offering many “done for you” services, such as done for you starter websites, articles, seo, some graphic design, some link building, and everything beginners would need to get their starter sites off the ground.
Q: How has that evolved into Onfolio?
Dominic Wells: After I grew HPD as far as I thought I could, I started looking for other opportunities, and I noticed my HPD audience were interested in buying bigger businesses that were already profitable. Some of them had a decent amount of money to invest, and they wanted my help to buy a business and run it for them.
This was actually something I’d considered offering as far back as 2016, but I had wanted to build more credibility first.
So I launched the service as a standalone brand via Onfolio.co as I felt the two businesses were similar, but needed to have different marketing and different styles of content. I also wanted to sell HPD, which I did in 2019, so I could focus solely on Onfolio. I felt I had grown and I was holding HPD back, and it was holding me back. By selling, both brands would thrive (which they did).
Onfolio started in 2019 and grew quickly, as more and more people realized what we were offering was something they’d been looking for for some time, and I already had credibility.
At Onfolio, we would work with individuals to help them find, vet, buy, and then operate an online business. Initially, if somebody had $50,000 USD or more, we would work with them, but that minimum soon increased to $100,000.
We had a good track record, and the vast majority of sites we operated performed well.
However, and I’ll go into this more in the next question, we wanted to be able to protect everybody from the downside, which we couldn’t do if we working with everyone as an individual.
Q: Why did you decide to do a fundraising event?
Dominic Wells: As I evolved Onfolio, I wanted to find a way for all our investors to share the same pie. That way, if one website underperformed, it would be offset by the gains from the other websites. Essentially, I wanted to find a way of eliminating the risk of this asset class, without destroying the benefits in the process.
I first looked at raising a fund, because that’s what everyone else in the space is doing and is the natural first port of call.
However, a fund didn’t really match up with my worldview on the opportunity in the space. I wanted more of a permanent capital structure, without being forced to sell assets after a few years. I also wanted to be more aligned with investors and not have a hurdle or “2 and 20” management fee structure. Finally, I wanted investors to be liquid, which you can’t have in a fund.
This led me to consider a holding company, and taking it public, which would give all of the above. It would also allow us to raise significantly more capital and build a significantly higher valuation into the company, which would benefit both us, and investors.
However, some investors still wanted cashflow, so as well as raising non-cash flowing equity, we also launched a preferred shares offering, which comes with a 12% dividend. This is a very attractive investment (12% is very high compared to other asset classes), but would allow us to buy all the businesses we needed. It would also take the downside away from investors, as their 12% wasn’t based on the specific performance of individual websites.
Q: Based on the Q&A video you recorded in December 2020, which you sent to potential investors, you disclosed that the minimum entry for non-US investors is $5000. And that the investors from the US had to be accredited investors. I would encourage anyone who is interested, to watch that video.
Based on that information, can we go through a typical scenario of how things might unfold in an ideal scenario? Let’s round it up, and say if someone would invest $10,000. They can expect a 12% annual return, paid quarterly? Does this mean $1200 would be paid in four $300 payments at the end of the quarter? Essentially, the investor could potentially expect to get the investment back in 8.333 years? From then, they would keep receiving the payments (12% annual return, paid quarterly) in perpetuity? But also, you do not guarantee that the payments will be made each quarter, and will disclose financials that explain why this might have occurred? In your own words, can you confirm this scenario from start to finish?
Dominic Wells: Yeah we’d pay 3% per quarter, so in that example you are correct. If someone is outside the US, there are withholding tax requirements depending on the country as well. Usually around 15%, so we might have to withhold $45 and pay the investor $255, but of course taxes can’t be avoided.
After five years, we have the right, but not obligation, to buy back the shares at the same $25 share price, so investors would most likely get their money back sooner. Why five years? From our perspective, we don’t want to be paying 12% into perpetuity, and will likely have access to cheaper capital by then, but at the same time, we don’t want investors worrying we’re going to buy their shares back as soon as we get cheaper capital, so we are promising not to buy them back for the first 5 years.
That said, investors can also sell their shares to somebody else, either privately, or once the shares are listed on an exchange, so they can most likely get their money back sooner if they wish. We can’t guarantee that the payments will be made, but we’re confident that our profits and cashflow will be more than enough to make timely payments.
It’s the nature of a preferred share that issuers have the option to defer payments until a later quarter if they hit a rough patch. This is not an ideal situation, but it’s actually a good thing. If we issued a bond for example, and then hit a rough patch, we wouldn’t have the option to defer payments, which could cause insolvency. Preferred shares give companies the flexibility to survive a worst case scenario.
To emphasise though, I find it very unlikely that we’ll miss a payment, it’s just important to disclose the “what if” scenarios.
Q: Also in the video I mentioned in the question above, you talked about risk that’s involved in buying websites. Google updates, Amazon program changes. Instead of repeating the answer from the video here, can you share how you see the risk from an investor’s standpoint? Can you compare it to investing in other assets like stocks, real estate, cryptocurrency or in someone’s website portfolio? For example, buying a website at 40X, and getting a 30% annual return with some work involved with managing a website and risks with various industry updates.
Dominic Wells: Any single website’s revenue can drop by a significant amount without the operator being able to do anything about it. To assume this isn’t the case is suicide. As such, the best way to mitigate this is to diversify.
In fact it’s really the only way to avoid losing money. Having your own portfolio is great, but you’ll either need to be a master operator with no time for anything else, or you’ll eat into your returns by hiring a team to help you.
Either way, 30% is unlikely without substantial risk. On a long enough timeline, the penalty for risk is loss of capital.
With our offering, we make sure to protect the downside, while still giving better returns than you’d earn elsewhere for similar risk.
I try to avoid comparing it to stocks, real estate or cryptocurrency, because a lot of them aren’t cashflowing. Real estate is cashflowing of course, and many people make comparisons between websites and real estate (I even did so here), but it’s still not an easy answer, because real estate has things like leverage that can increase the yields.
Q: Speaking of risks in this space, not so long ago there was a ponzi scheme where returns were primarily funded by paying early investors with money raised from later investors until the Ponzi scheme became “unsustainable”. In the end, Income Store investors lost more than $100 million. What assurance do investors have that the same won’t happen with Onfolio?
Dominic Wells: I don’t think Income Store started out with the intent of being a Ponzi scheme, I think they just ran into issues because of their guaranteed 15% returns, and then they started acting in Ponzi-like fashion, robbing Peter to pay Paul.
We’re obviously different in a few key ways. The first is since we don’t guarantee our dividend, as talked about above, we aren’t going to run into that issue. The second is that we’re going to have audited financials and will be an SEC reporting issuer, in other words we’ll be a public company.
We’re also better at executing our plan and won’t run into cash flow issues, but people shouldn’t have to rely on our promise of being good at what we do, because the audited financials and SEC filings will be all the assurance people need.
Q: In your Industry Report Choosing the Best Online Business Investment Vehicle — The Risks and Rewards of 5 Online Investment Models you talk about the 5 different investment models. Do you think it makes sense for a website investor who handles his own portfolio to also invest in a company that grows a bigger portfolio? Why yes or why not?
Dominic Wells: It really depends. Some investors may not want to invest in our shares, whether common or preferred, because they’re capable of getting higher returns by managing their own websites. That said, if an investor buys a website for $100k and triples the website’s income (which isn’t easy to do), the website will be worth $300k.
In Onfolio common shares, $100k could become with $1,000,000 in a similar time period, simply because we’re buying more and more businesses and that is translating to a higher share price over time. Not only that, but we’ll probably be trading at 10x annual profit as a public company, so that $100,000 business will be worth more than $300,000 in our hands, without even tripling it.
Why would a website investor not want those returns? It all comes down to whether or not they believe we can execute our business plan.
Q: Who should ideally invest in such an investment model?
Dominic Wells: Anybody who is able to understand the investment and has the capital on hand to invest.
Q: In the Onfolio Holdings deck, you posted your historical results from 2019, and 2020. You essentially 7,5 X-ed your profits from $18k to $135k. Can you share a little bit what has been the major factor in such outstanding growth?
Dominic Wells: The majority of our growth from 2019 to 2020 came from word of mouth as people learned about our services. We grew the assets under management considerably, and as we took on more websites and started growing them, we naturally grew our profit.
Q: When you are looking to buy a website what are your top 3 priorities?
Dominic Wells: 1. Don’t buy a business that will die later. 2. Don’t buy a business that will die later. 3. Then worry about growth.
Q: In several articles you published, you are making the connection between Onfolio and Berkshire Hathaway. Would you then agree that it is far better to buy a wonderful website at a fair price than a fair website at a wonderful price?
Dominic Wells: Yes, if you’ve listened to me on any podcast interview, I say this almost every single time. People worry too much about the price they pay for a business, rather than what they get for their money. Multiples and valuations are relative. Some of the best purchases we’ve made came from businesses where we paid above average.
Q: When you are growing your website, what are the first 3 things you do?
Dominic Wells: A lot of the work we do is done before we even have the keys to the castle. We analyze opportunities and things that need fixing during the due diligence stage. What those things are will differ per business, but it usually involves a thorough SEO audit, a user engagement audit, and then usually we build out other channels. Most sellers are only strong in one or two areas, whereas we have multi-channel expertise, and will add something to the business, whether that is email marketing or something else.
Q: In your interview with Authority Magazine you mentioned that people tend to overestimate how much they can achieve in a year, and massively underestimate how much they can achieve in 10 years. Do I sense a little bit of Tony Robbins in there? Are you a fan of personal development and kaizen?
Dominic Wells: I’m not exactly sure where I first heard that quote, but it stuck with me because it’s so true. I’ve been in online business about 10 years, so it’s quite pertinent. Where I am today compared to 2012 is beyond what I ever expected, but after a year I thought I would’ve been much further along. It’s important to zoom out.
I’m not into personal development per se, but I’m growth-minded, and that means I naturally look for ways to develop myself, regardless of what gurus are saying.
In the end, I would like to share Dominic’s comment he wrote in one of his articles.
It is too risky in 2021 to just buy one business and run it, unless you are highly experienced in both the business’ industry, internet marketing in general, and diversifying revenue and traffic. You either have to buy an ensemble of smaller businesses, which require a team that they can’t afford to pay, or you have to spend a significant sum of money buying larger businesses so that you can afford to hire a team to run them.Dominic Wells
If you are wondering where do I fit, I am the guy with an ensemble of small websites which require a team that I can’t afford to pay. There’s certainly truth in that, which is why I am considering investing in Onfolio. Then again, that’s just a nicer way of saying, for full disclosure, that I don’t own any shares in Onfolio. With that, I would like to congratulate Dominic on paying the first dividend back on 31st March, and wish him the best of luck with Onfolio!