“Don’t need no fast buck, lame duck, profits for fun,
Quick trick plans, take the money and run,
We need long term, slow burn, gettin’ it done,
Straight talkin’, hard rockin’ son of a gun.” – Rockin’ The Paradise, Styx

It was arguably the biggest deal in Internet media ever in Western Canada.  Bigger than Club Penguin’s US$350 million purchase by Disney.  It was a billion dollar deal that didn’t happen... and Kevin Ham could not be happier.  The CEO of Reinvent (figuring prominently today on my list of top Internet Media companies) told his story publicly for the first time last Tuesday at the Vancouver Enterprise Forum.  Buried in that fascinating story of how he started his domaining practice in 1999 in London, Ontario, gave up his dream of being a family physician, moved to Vancouver and grew his business to a hundred million dollars a year, was an incredible tale.  It was a story of how he wanted to raise $300 million (at a reported $1 billion USD valuation) to acquire other domainers and content creators and cash in on the Adsense arbitrage that the big search engines (Google and Yahoo) were un-wittingly fuelling.

As Kevin admitted, the domaining business is a volatile one with values of the Internet “real estate” going up and down wildly, depending on the economy.  In the summer of 2007, business was good... very good.  Domains could be sold for top dollar.  Traffic could be captured by Adwords, SEO and clever mis-spellings (he was the guy that tried and failed to get the .co top domain from Colombia and tried and succeeded getting the .cm from Cameroon) and then directed to thousands of single page sites with tons of sponsored links.  He was raking in the money.  Trailing 12 month earnings were over $30 million (BC tech companies making more profit than that in 2007 were only MDA ($94M), Aspreva ($142M) and Sierra Wireless ($35M)).

To that point, no one in the financial community, here or anywhere, knew about Kevin and his incredible profit machine.  Then, in a well-timed piece of PR, he appeared on the cover of Business 2.0 as the “man Who Owns The Internet” and the phone started ringing.  Investment bankers (disclosure: I wasn’t one yet), jumped on planes and grovelled in his office for his business.  Kevin did have some use for the opportunistic sharks in suits showing up in Vancouver by the truckload (did I mention I wasn’t one yet?)... he wanted to raise money.  Kevin had heard about a company in Guelph Ontario called Geosign that was seemingly growing at an un-stoppable rate.  Geosign had been in domaining, but was now cashing in on search arbitrage (created using AdWords and AdSense) and had raised $160 million from an obscure US private equity fund to help them fuel their growth.  He wanted to out-do Geosign and raise almost twice as much.

Within weeks, Kevin had narrowed the search for his agents from eleven US investment banks to two, Bear Stearns and Bank of America, and went to meet them in New York.  He recalled whimsically the beauty of the old Bear Stearns building and how impressed he was with their people and offices... now long gone in the trash heap of the sub-prime meltdown.  Both sets of bankers were touting their ability to get him $300 million in short order and, yes, the value of his company would be in that billion dollar range.  Quite a feat for a family doc who self-taught himself how to program in order to cash in on the Internet.  Kevin said he talked to the head of leverage (essentially the guy that lines up the debt to go with the equity cash that would form 80% of the $300 million) and he was nervous.  He mentioned that the world was about to change.  Remember, this was September 2007, a full year before the world understood what had happened. If Kevin had done the deal, he would have been saddled with a 30% shareholder in his company (the private equity firm) and $240 million in debt...  Easily payable from cash flow of a company that was growing rapidly through acquisition or more aggressive ad arbitrage.  Or both.  But what if the economy swung down and domaining became less lucrative?  What if cash flow slowed?  That debt would really be an albatross.  Kevin thought long and hard about what the leverage guy said.  In the best decision of his business life, he didn’t take the money.

Geosign’s story has been well told.  Google shut them down almost overnight by jacking their AdWords rates.  The company collapsed a mere eight weeks after it closed the money.  It could have been Reinvent.  Kevin missed out on making a few million more dollars, but in the long run, he is alive and well today because he declined the deal that would have gave his company a billion dollar valuation.

I remember the comments from some of the bankers involved in wooing Kevin back in 2007.  They were flabbergasted that he didn’t take the money.  They said he was crazy.  They seem to have been right... crazy like a fox.