Dom Wells·May 2, 2022

Buying Digital Businesses in 2022

Dom Wells is a serial digital entrepreneur and CEO of Onefolio, a holding company that buys and operates online businesses, based in Taipei, Taiwan. He began acquiring digital businesses in 2012 after reading The Four Hour Work Week, built and sold a done-for-you website business (Human Proof Designs, $1m/year revenue) in 2019, then pivoted Onefolio from a managed-services model to a diversified holding company in 2020. By the time of this episode, the company owned roughly a dozen digital businesses generating about $2.5m combined annual revenue, funded by ~$3.8m in investor capital raised over 2020-2021, with an IPO planned to scale acquisitions further. The episode is primarily an expert survey of the digital business acquisition landscape: Wells walks through the pros and cons of affiliate/content sites (high platform risk from Google), e-commerce (cash-intensive, Facebook/Apple risk), digital products/courses (preferred), SaaS (great model but hard to buy at small scale), and display-ad content sites, and advises non-technical buyers to invest in funds rather than operate directly.

Deal facts

revenue: $2.5m total portfolio revenue (2021)
financing structure: Raised ~$800k (Sept 2020) + ~$2m (Sept 2021) + ~$1m throughout 2021 from investors into holding company
notes: Onefolio owns ~12 businesses outright (as of episode date); largest individual business generates ~$300k/year revenue; planning an IPO to raise further capital for acquisitions. Earlier sold his own business (Human Proof Designs) in 2019 after scaling it to $1m/year revenue.

Why this business

Wells discovered affiliate marketing in 2012 after reading The Four Hour Work Week while living in Taiwan, looking for location-independent income. He stumbled into buying digital businesses because it was faster wealth creation than building from scratch, and he had capital to deploy. He pivoted Onefolio into a holding company in 2020 because he realized diversification across many owned businesses was better for investors and himself than running individual client businesses, and he wanted to build something with no ceiling for the next decade or more.

What's working

Diversification across ~12 digital businesses buffers against platform risk — when one business is hit by a Google algorithm update or Amazon commission cut, the portfolio as a whole is insulated
Focus on courses and display-ad content businesses rather than SEO affiliate or e-commerce, which have higher platform risk
Investor capital raised into holding company structure (vs. individual client model) reduces client management overhead and aligns incentives
Raising institutional capital toward an IPO to scale acquisitions significantly

What's hard

Thin deal flow: only a handful of quality digital business brokerages (Empire Flippers, FE International, Quiet Light) with modest listing volumes at any time
Seller valuation mismatch: especially on Micro Acquire, sellers have inflated price expectations often disconnected from actual profitability
Platform risk is pervasive — affiliate businesses vulnerable to Google algorithm changes; e-commerce businesses vulnerable to Facebook/Apple iOS changes; Amazon unilaterally cut commissions from 8% to 3% mid-pandemic, devastating affiliate site owners overnight
E-commerce is cash-flow intensive — constant inventory purchases mean free cash flow is rarely realized
SaaS founders at the low end often exclude their own developer labor from expenses, making apparent margins illusory for an acquirer who must hire a developer
Cold/proprietary outreach produces a lot of unrealistic seller expectations and dead-end conversations
Non-technical buyers should not attempt to self-operate digital businesses without significant learning curve; better to invest via a fund

Notable quotes

Investing in online business is actually not passive. A lot of these businesses earn money passively but owning the business isn't a passive income — so it's kind of this weird misconception.

It takes just as much effort to build something big as it does something small, so you might as well swing for the fences.

An affiliate business is a fine business to own but not a good business to buy.

Amazon went from eight percent down to three percent and as far as I'm aware they didn't discuss it with some of the other departments within Amazon — they just announced it. For me once, shame on me. For me twice, don't buy Amazon sites again.