[00:03:01] Mike Vranjkovic: You go to the site, you see reviews for different types of products. Let’s say best carry-on Luggages, they review the top five carry-on luggages. And the way that website or that business makes money is if somebody clicks on a link and they go Amazon or they go to somewhere else and they buy that luggage. That website will get a certain fee.

[00:03:27] Robert Leonard: And so you say popular sites, they get traffic from Google. What? What does that mean? What does traffic from Google mean and how does that happen? How does somebody build a site that gets traffic from Google?

[00:03:38] Mike Vranjkovic: When I say gets traffic from Google what I really mean is most of the visitors to the website, they didn’t type domain or the name of the website into their search bar and find it that way.

[00:03:47] Mike Vranjkovic: Let’s go back to my luggage example. Let’s say I was looking to buy a new carry-on luggage for travel link. I would go to Google, start there and say, best carry-on luggages or lightweight, carry-on luggages, or expandable carry-on luggages. I would see a number of results. And Maybe one of the first results I would see is this review site reviewing different types of luggages.

[00:04:07] Mike Vranjkovic: So prior to me visiting that I might never heard of it, and then I land on that site, read their content and maybe click an ad or maybe click a link. 

[00:04:23] Robert Leonard: So a couple years ago I had some side projects that were not niche sites. They were just totally unrelated, like little side hustle side projects that I had. And I would create the websites and for these little projects that I had, and I would go to Google and I’d search like very specific, the name of what I was trying to do wouldn’t even show up.

[00:04:38] Robert Leonard: And I’m like, what is going on? Like, I don’t get this. And I honestly didn’t spend a lot of time to dive into it and figure out what was going on. But fast forward 3, 4, 5 years later to where we are now. I’m like, oh my God. Like I understand like everything that I was missing. So for people who are wondering like, okay, I get somebody will search something, these websites show up, but like how does somebody create a website and actually get their website to show up in those SERPs is what we’ll talk about the search engine result pages.

[00:05:03] Robert Leonard: How do they get them to actually show up in Google? 

[00:05:06] Mike Vranjkovic: Google, as you would expect, has a complex algorithm and it’ll look at websites that it considers trusted and relevant based on what you’re searching for. So of course, if it has whatever keyword or whatever phrase you searched for multiple times in their page, that will help.

[00:05:22] Mike Vranjkovic: However, another major ranking factor, another factor that determines which site is at the top and which site might be on page 50. If other sites link to it as well. So going back to that Wirecutter luggage example, if it’s a really well-written article that a lot of other websites are linking to, Google will see that as a signal and say, Hey, this is a really good site.

[00:05:45] Mike Vranjkovic: It has high authority. A lot of other people are linking to it. We’re going to move this up in the results. So that’s a really oversimplified version of it. 

[00:05:53] Robert Leonard: I know another topic we’ll probably hit on throughout, like the types of businesses that you invest in with your fund and what you guys are doing with WebStreet, but it is FBA businesses.

[00:06:05] Robert Leonard: Explain what an FBA business is and how that business model works. 

[00:06:10] Mike Vranjkovic: An Amazon FBA business is investing in the business that owns the product being sold on Amazon. So what most people don’t realize, majority of the products probably somewhere around 60 to 70% being sold on Amazon. Those are private label brands.

[00:06:27] Mike Vranjkovic: So those are anything from small to medium individual businesses. Contract manufacturing these products and selling them on Amazon. Now, of course, there’s some very big brands as well, but most of the sales on Amazon are coming from third party sellers. Amazon will warehouse the product. It’ll handle the payment processing, the returns, the customer service and all of that, but the actual brand owner behind the product, that’s an Amazon FBA business.

[00:06:52] Mike Vranjkovic: That’s one monetization, or one the business models that we look closely. 

[00:07:00] Robert Leonard: And FBA for those listening stands for Fulfillment By Amazon, which is exactly what Mike was just saying, is here is you have your products and rather than you, you hear these stories of guys who just start companies and they might be packing their deodorant in their living room and then shipping it out rather than doing it that way.

[00:07:16] Robert Leonard: You could send all your product to Amazon. They handle kind of all the logistics for you, kind of like a three PL in a sense. So that’s what FBA by Amazon is or FBA business is. Now the next thing I want to talk about, Mike, is I want you to tell us a bit about some of the biggest players in the industry, such as Red Ventures.

[00:07:33] Robert Leonard: That’s just one I’m familiar with. And I want to talk about this real quick because I think hearing about the size and the scale of some of these operations can really provide legitimacy to this idea of these types of online businesses, like content sites, niche sites. because when I first got into it, I was like, okay, you might make a couple $10, $50, $300, you maybe even a couple thousand dollars like you might do really well and make a couple thousand dollars.

[00:07:56] Robert Leonard: Then I started hearing about some of these guys that are at the scale and size of Red Ventures, and even smaller than them still, but very successful. So talk to us a little bit about companies like Red Ventures and give us some, put some legitimacy to this idea of a business. 

[00:08:10] Mike Vranjkovic: Red Ventures is one of the bigger players in the space.

[00:08:13] Mike Vranjkovic: They basically own a whole bunch of content types of sites like we talked about. There are big company that are about 4,000 employees, lots of readers every month. And they’ve purchased some really big properties that are, that a lot of people might be familiar with. So they’ve bought CNET, which is a website that does all kinds of reviews, all types of news for half a billion dollars for $500 million a couple of years ago. They also own bank rate, which they paid over a billion dollars for, and they own a whole bunch of brands that people might be familiar with.

[00:08:55] Mike Vranjkovic: Healthline and other multiple brands. So, they have the exact same business model as these content sites That we’ve talked about so they create content that people are searching for and then they make money with affiliate links and advertising.

[00:09:17] Robert Leonard: What’s interesting or was at least interesting for me is that I didn’t realize the breadth, I guess, of how this business model works. Like once I understood the business model, I started seeing them everywhere. I was like Credit Karma. Credit Karma is essentially a content site or a niche site, like their niche is finance and credit scores specifically, and they make money by.

[00:09:37] Robert Leonard: You know all the affiliates that they have. When you, if you’re a user of Credit Karma, you go in there, you get ads for credit cards and personal loans and auto loans, and they get a fee for every time you click that. That’s how they provide their service for free. They get you into their website, they get users, try to get as many users as they can using the product, and then they give you these affiliate ads and they make money that way.

[00:09:54] Robert Leonard: And then even it goes to the side of like free applications, like free mobile apps. Like you go in there and your mobile app, whether it’s a game or something else that has ads. That’s essentially what a niche site is like. You’re trying to get as many users as you can to your site. That’s what these apps are doing.

[00:10:08] Robert Leonard: They’re trying to get as many people to the apps as they can, and they just show you display ads and it’s, it was really mind blowing to me when I learned about this business model and just how widespread or how wide reaching it really is. 

[00:10:19] Mike Vranjkovic: Yeah, it’s definitely fascinating. Before getting in this industry, I mean, when I used to browse the internet, I had one of those AdBlockers on.

[00:10:25] Mike Vranjkovic: So for a long time, I didn’t see any of these display ads, and then when I started working in the industry, I turned all of that stuff off. But it exactly like you said it’s eye-opening now when you’re on different websites going about your day, you start looking at the business model behind those websites.

[00:10:40] Mike Vranjkovic: You’re like, ah, this is how they make money. This is the service that I use. This actually makes sense. This is what they’re doing. 

[00:10:45] Robert Leonard: And you don’t realize the scale of them either. It’s pretty interesting. It’s actually really interesting. It’s been something people listening to the show know I’ve been, haven’t been hosting for a little bit.

[00:10:55] Robert Leonard: I just came back to hosting the show and I’ve been really involved in this part of like online business for the last year. I’ve been really diving into learning as much as I can. It’s really fascinating to me. You mentioned AdBlockers. How much of a concern for online businesses like this is or are AdBlockers?

[00:11:14] Mike Vranjkovic: They would typically block affiliate ads, but they wouldn’t block inline content. If we go back to the same example where you’re looking at a different luggage reviews, those would be inside the content with links. But if there’s an ad on the side of it, that ad would probably get blocked.

[00:11:30] Mike Vranjkovic: They’ve been around a long time. They’re billed into some browsers. So it’s it’s nothing new. It’s something that’s been around for quite some time. 

[00:11:38] Robert Leonard: So they do block display ads, but you’re probably okay from the affiliate side of things. 

[00:11:44] Mike Vranjkovic: Correct, depending what type of affiliate ad you have but that’s correct.

[00:11:49] Robert Leonard: AdBlockers maybe not too big of a deal, but one of the existential threats maybe, so depending on what people think is facing this business model right now. And that’s AI and specifically Google’s, SGE. Like I said, some people aren’t too worried about it, others are really worried about it.

[00:12:05] Robert Leonard: I’m curious how you see this impacting these business models that we’ve been talking about, specifically niche sites, content sites, affiliate sites, maybe not so much the FBA businesses, but content niche sites and affiliates. And then also explain what Google’s, SGE is for people who don’t know. 

[00:12:21] Mike Vranjkovic: In short, I think it’s going to absolutely destroy low quality content sites.

[00:12:27] Mike Vranjkovic: Great example of a low quality content site. For example, I’ve been, I started doing more cooking lately again, and one of the things that I searched for is how long do I bake chicken in the oven for? And if you go through the results, you’ll notice a bunch of really crappy sites. So you go to the site and all you’re trying to find is the answer, whatever, it’s 20 minutes at this many Fahrenheit or Celsius, or whatever the answer is.

[00:12:51] Mike Vranjkovic: You’re reading all this crappily written content, you’re seeing ads everywhere. You’re seeing images that are completely irrelevant for you. They’re talking about other stuff because they’re trying to make the length of the article better because they’re trying to game the Google algorithm. And while that’s just a really bad user experience, so what Google has been doing for years it has been a little bit of a cat and mouse game.

[00:13:11] Mike Vranjkovic: With people that are building these sites and trying to get them to rank, because they’ll reverse engineer the Google algorithm and they’ll try to get it to rank. So going back to that same example, they’ve realized, okay, if I have longer articles, Google will look at it as a higher authority, better quality article.

[00:13:25] Mike Vranjkovic: So I’m just going to add all this crap content to make my articles longer. And then it, a few months, a year later, Google will see a whole bunch of those articles popping up and they’ll say, well that’s crap. That’s clearly not what the user wants. Let’s penalize those types of sites. So there’s always been updates and always changes that impact content sites a lot.

[00:13:44] Mike Vranjkovic: Now, the reason I’m using that example, let’s say I started my query on ChatGPT for the same thing. How long do I bake chicken breasts in the oven and I’m currently outside of the US. Give me an answer in Celsius, we get a really nice two sentence answer. Now as a result of that, Google is making more changes to its, as far as I understand, I’m definitely not an SEO expert on this, but as far as I understand, Google is making more searches to its algorithm to be competitive with ChatGPT, so that way people don’t start using ChatGPT as their first point when they look for information that way they’re using Google using that same example.

[00:14:20] Mike Vranjkovic: How long do I bake chicken for? You might see some snippets at the top of your, the Google search results, which is basically, you’ll see the question and then you’ll see an answer right below it. So the new round of changes that Google is planning to roll out? We’ll see exactly what happens.

[00:14:33] Mike Vranjkovic: As far as I, as far as I know, it hasn’t been fully rolled out yet. They’re basically looking to do snippets and steroids and a big thing of that, they’re going to provide the source where they found the answer. But a lot of people might not be clicking on the source like we’ve seen with snippets currently, and they’re going provide less sources.

[00:14:50] Mike Vranjkovic: So this is something very new. We’re all waiting to see what happens, how it gets rolled out, but I definitely think it’s going to have a much bigger impact on the lower quality sites that are creating kind of crappy content that readers don’t really have a great experience reading in the first place.

[00:15:06] Mike Vranjkovic: And we’ve seen those types of sites get absolutely destroyed over the last few years, more and more. So for anybody looking to get into the content space, the big thing is like if you’re buying a property or if you’re building something yourself, I think you have to ask yourself like, does this create value to the reader? because you can do all these things to game the Google algorithm. They might work short term, but you’re just an update away or you’re just one change away from losing a lot of 

[00:15:34] Mike Vranjkovic: traffic. 

[00:15:35] Robert Leonard: To your point about chicken, I have searched that many times myself, like almost that exact same query and I didn’t really think much of it years ago.

[00:15:43] Mike Vranjkovic: But now that I’m in this world and I own these businesses, I see it the same way and I’m like going through these articles. I usually will just click the first one and there’s like 3, 4, 5, 6, maybe 10, 12 paragraphs of all this stuff. That’s just like filler content. It’s like where did chickens from come from?

[00:15:59] Mike Vranjkovic: Where are they originated? How long are they babies? Like all this stuff about chickens. And then at the bottom it’ll finally say, okay, cook the chicken for six minutes at 400, whatever the answer is. And like, I gotta scroll through all this stuff just to get there. And like you said, people are doing that to game the algorithm, 

[00:16:14] Mike Vranjkovic: The Google algorithm.

[00:16:16] Mike Vranjkovic: The worst thing is when you spend five, 10 minutes searching for the answer and then you get to the answer and they tell you something like, oh yeah, stick a thermometer and it, when it reaches this temperature, you’re good. And it’s like, alright, if I had a thermometer in hand, I clearly wouldn’t be searching for this.

[00:16:29] Mike Vranjkovic: So Google is really good at trying to figure out if the thing that people clicked on makes them happy. One of the things that they’re, that these sites.

[00:16:43] Mike Vranjkovic: Right away, they’ll penalize that site or not necessarily penalize it, but they’ll rank it lower than they would another site where people are really enjoying the content and reading it. But that example that we just talked about that’s a clear people trying to game the system and not really delivering an optimal experience.

[00:16:57] Mike Vranjkovic: And I think more and more of that stuff is going to go away. 

[00:17:00] Robert Leonard: To your point earlier that it is super complex. Google’s algorithm is really complex. They not only know how long you’re on the page, but they know, and again, this is all theory based on what people think, and there was a leak of basically, I think it was Russia’s Google, basically their whole algorithm got leaked.

[00:17:15] Robert Leonard: So we kind of in this SEO world where we can kind of say, okay, this is what they’re doing. Maybe Google’s doing something similar, but to an extent, like they think Google knows. That not only how long you’re on the page, but if you go back to the, like, if you hit the back button, go back to the search engine results page and then click another page instead of getting your answer and being done, they see that as a bad thing or versus if you just x out of your browser after only going to your page, they said, that tells Google it’s a good sign.

[00:17:40] Robert Leonard: because they’re like, okay. He or she probably got their answer that they need and they’re good. And like you said they’ll bump them up maybe in, in the algorithm. And so the SGE stuff is really interesting, which is search generative experience. And basically, like you said, what Google’s doing now is, rather than you searching something and then having to click on a search result and going to a website and finding the information, what they’re doing is they’re going to basically have AI answer the simple questions like you said about the chicken and some other simple things.

[00:18:08] Robert Leonard: And so now if you think about the listeners as they. If you think about the incentives of these websites, they make money by the number of visitors that they have that come to the website. because then they can show more ads or sell more affiliate things. And so if Google is providing a response via AI right at the top of the search engine, the users aren’t going to know necessarily that’s even AI.

[00:18:27] Robert Leonard: It’s just going to look like, oh, I got my answer, basically without having to click on anything. And so that’s going to reduce the number of people that are going to the websites that are ranked there. And that’s going to reduce revenue. And so that is why I said it’s kind of an existential crisis right now that’s facing this business model because a lot of people are worried that their traffic is going to go significantly down.

[00:18:44] Mike Vranjkovic: I think it really depends on the niche as well as the quality of the content. So our fund is definitely not looking to buy any recipe, any basic recipe sites anytime soon. But in fairness, Even before all of this was more mainstream in the news a year or two ago, we weren’t buying those recipe sites as well for other reasons because we realized probably a matter of time before they get penalized somehow or before they lose traffic somehow we didn’t know exactly what it would be, but we realized this is not good for the end user.

[00:19:12] Mike Vranjkovic: This is just a temporary arbitrage between being able to get traffic easily and monetizing it. This is not a real business. So, and there’s of this AI stuff is in the news now. And for good reason. It’s going to change the world. But one important thing to keep in mind with content, it seems like one of these a hundred year floods hap happens to happen every two to three years.

[00:19:35] Mike Vranjkovic: So Google has multiple times changed their algorithm. Way back in the day, you could whatever you had in the domain name would determine how well you so going back to the suitcases, if you owned bestcarryonluggage.com, you would be the top result for anything talking about carry-on luggage. And then that was no longer the case. And then there’s been a whole bunch of changes through the algorithm.

[00:19:57] Mike Vranjkovic: So it’s definitely an ongoing thing. And the constant here is that things constantly keep changing for the way traffic flows to these websites. 

[00:20:06] Robert Leonard: Mike has mentioned penalize or penalization a couple times, and so what that means is Google, throughout time, a couple times a year, once a year, depending on their own schedule, will come out and say, okay, we don’t like that.

[00:20:17] Robert Leonard: Certain sites are doing this, and there’s tons of different reasons as to why they’ll do these. But basically it’s like Google essentially like passes their own, like law essentially is like, the way I could clarify it a little bit or make an analogy is like they essentially pass the law and then anybody, any site that’s like quote unquote breaking that law, they get penalized and now they’re not going to rank as high in the search engines.

[00:20:37] Robert Leonard: That’s not, that has nothing to do with AI and that’s not anything new. That’s been, it’s kind of been something you have to deal with in this business model for a while now. What are some other risks outside of just AdBlockers, AI and Google updates that are associated with starting and investing in online businesses like this?

[00:20:55] Mike Vranjkovic: I’ll keep you to content because I think the FBA risks are significantly different, but def definitely happy to expand on those as well. So one, one thing that we haven’t talked about is competition. So let’s say you have a lucrative niche. Let’s say it’s a larger niche that for some reason doesn’t have a lot of competition.

[00:21:12] Mike Vranjkovic: And then Red Ventures or one of Red Ventures assets decides to enter the niche, you’re probably not going to have a good day simply because they have one. They have domains where if you add new content to those domains, so you’ll probably rank really quickly and I’ll outrank you. So just like any business, it’s competition is a big thing.

[00:21:30] Mike Vranjkovic: And then the other downside with I guess both content sites and any types of online business is these are not passive assets. They require a specialized skillset to run these assets, and they require quite a bit of time to run them. And oftentimes if you’re in lucrative niches or you have larger assets, you’re competing with, with people that have been doing this for quite some time and that do this for a living.

[00:21:55] Robert Leonard: So we’ve spent some time, 5, 10 minutes now talking about some of the risks and the negative sides of this, but I know there’s a lot of positives. I really like this business model. I’ve been involved with it. Like I said, I know you’re really involved with it. So what are some of the intriguing sides of this, these businesses, this asset class, and what does this asset class do better than other, maybe more traditional asset classes?

[00:22:18] Mike Vranjkovic: The most fascinating thing from an investing perspective is the multiples at which you can buy these businesses at. So especially if you focus on the relatively smaller transactions, let’s say $200,000 to $80 million dollars, you could acquire one of these businesses for three to four x annual profits.

[00:22:40] Mike Vranjkovic: And that’s what makes it so attractive. If you buy something for three x annual profits and it just stays the same in three years, you’re going to recover your initial investment. Now, the difficult part is the just stays the same, but there’s of course opportunity to grow these assets as well.

[00:22:56] Robert Leonard: People listening to the show, Mike, are mostly stock investors. Some are entrepreneurs, some are side hustlers, but most of them are stock investors. And so for the audience, what Mike is saying, like we’re always looking or often looking at multiples when we’re buying, making stock investments, we’re looking at PE ratios, price of sales.

[00:23:13] Robert Leonard: Et cetera. And what Mike’s saying is you could buy these businesses at three times basically PE or less, you get two PE. So like, think about that from a public equities ex situation. Like how, imagine if you could go out there and buy a great business that you’re interested in that has cash flow and you could buy at a PE of two or three.

[00:23:31] Robert Leonard: That’s a really intriguing opportunity. And like Mike said, there’s some active piece to this where there isn’t necessarily in the stock market, you’re not going to buy that stock and go out and run that business, but, It’s still the multiples that you can get as both a buyer and a seller are interesting because on the seller side, you’re getting 36 times your monthly revenue and that you can upwards of that or more.

[00:23:51] Robert Leonard: And that can be really intriguing as a seller too. So it’s this interesting dynamic between the multiples both working for the sellers and the buyers. At least that’s been my experience. Do you see that most sellers are pretty happy with the multiples? Mike? 

[00:24:02] Mike Vranjkovic: Of course. Especially if you consider that a lot of these sellers are serial entrepreneurs.

[00:24:07] Mike Vranjkovic: And they take a business from, or they build it from scratch, or they buy it and grow it significantly, then they take that cash and reinvest it into other businesses and do the process all over again. 

[00:24:16] Robert Leonard: Are those the multiples that you’re seeing, like 36 to 40 times monthly earnings? Is that roughly what you see in the marketplace?

[00:24:23] Mike Vranjkovic: Yeah I would say our average for the acquisitions we’ve done, we’ve bought 34 assets over the last couple years. They’ve varied quite a bit, but I think our average has been in the mid thirties and there’s something to be said here, like sometimes you can pick up assets for 20 X, so just under two years, annual profits and sometimes, you need to pay up significantly for the assets.

[00:24:44] Mike Vranjkovic: 4, 5 X. What you buy it at will of course return your, determine your rate of investment. So if you buy something for three X, that’s 33% rate of return annually. But that’s not the only thing to look at. You also to look at the risk, the likelihood of those earnings continuing. And oftentimes the lower priced assets are worse.

[00:25:03] Mike Vranjkovic: And if you think about it from a seller’s perspective, If you were really confident in the ability of this business to continue making money at this level or higher, would you sell it for a year and a half worth for earnings? Now, of course, there’s always exceptions, but it’s important to remember those.

[00:25:17] Mike Vranjkovic: Those are the exceptions. 

[00:25:19] Robert Leonard: For somebody that’s listening, think about this. If you have a site that makes $2,000 a month, it’s really, it’s doing well. It’s a strong brand, et cetera, and you could sell it for 40 times your monthly earnings. You have an asset that’s only making $2,000 a month. I mean, that’s good, but not, it’s not crazy.

[00:25:34] Robert Leonard: But you could sell that for $80,000 and that’s the power of it as the seller. 

[00:25:38] Mike Vranjkovic: And the most exciting thing is like, let’s say that this was one of your first assets that you’ve built, or you’ve built a number of these assets before. Oftentimes they’ll take that 80,000 and they’ll go out and build five new assets with that, and maybe three or four they’ll be able to sell.

[00:25:52] Mike Vranjkovic: Sell again. 

[00:25:54] Robert Leonard: What do you see for characteristics that increase the value in the multiples that you could sell a business for? And what do you see that actually reduced the valuation and reduced the multiple you could sell it for? 

[00:26:04] Mike Vranjkovic: Yeah, so the really interesting thing with these online businesses, especially the ones in the range that I talked about is, if you look at a publicly traded company, if you look at a stock, the multiple that they’re valued at the.

[00:26:19] Mike Vranjkovic: Is usually based on how fast the business is growing where is it expected to be a few years from now. Some of that plays into play or says some of that is part of the way you value online businesses, but even more so than that is how likely are these earnings going to continue?

[00:26:35] Mike Vranjkovic: So our fund would be, would be happy to pay a five x annual 60 x multiple. For something where we have a very high confidence that there is a high floor on those earnings where we have a very high confidence the earnings won’t go anywhere no matter what happens with ChatGPT or any of the other risks that we talked about, especially if we see opportunity to grow the business.

[00:26:56] Mike Vranjkovic: So as you’d imagine, the longer of a track record you have, the easier it.

[00:27:04] Mike Vranjkovic: And going back to the content sites, you can see what’s happened in the past, the site, when there have been changes, how it’s been impacted by competition. So generally, older businesses are worth more. All else being equal, larger businesses tend to be worth more because you get more of a more of a professional buyer pool that’s willing to pay more.

[00:27:22] Mike Vranjkovic: The exception is on the very low end if business. Oftentimes.

[00:27:33] Mike Vranjkovic: I would say anything that makes them less risky. So earlier we talked about traffic. Let’s say you have a website that doesn’t receive a hundred percent of its traffic from Google, let’s say it has an email list where it sends a newsletter, and that’s how it gets a lot of the traffic. Let’s say that it has some social media traffic.

[00:27:50] Mike Vranjkovic: Let’s say it has a Instagram account or Facebook account or whatever, and. Now, and let’s say Google Traffic’s only a third of it. Now, if something happens to Google, let’s say something that none of us were projecting, let’s say AI just absolutely crushes Google in the next week and we never hear of Google again.

[00:28:07] Mike Vranjkovic: I think that’s probably unlikely. But that business wouldn’t go from 100 to zero. It probably go from 100 to 70 because it just lost one third of its traffic. 

[00:28:16] Robert Leonard: Also, you could say the same about revenue as well. So if you don’t make a hundred percent of your revenue from display ads, say maybe you make some from display ads, you make some from affiliates, you make some maybe from your own products, maybe you sell ads in your own newsletter, maybe you have a YouTube channel and you make some from AdSense.

[00:28:32] Robert Leonard: So like you can also increase the multiple of your business and the value of your business of these online businesses by diversifying your revenue streams as well. What drove you to start a fund investing in these types of businesses and what you guys are doing at WebStreet? Was there a legislative change that made it possible when it previously hadn’t been?

[00:28:50] Robert Leonard: Like, what? What got you there? 

[00:28:52] Mike Vranjkovic: A little bit, but that wasn’t the main thing. So prior to founding WebStreet with my business partners, Justin Cooke and Joe Magnotti, I worked at Empire Flippers. So that’s a online business broker that was founded by Justin and Joe. And what they do is they sell online businesses, websites, Amazon, FBA businesses, SaaS businesses, anything that makes money online.

[00:29:15] Mike Vranjkovic: And one question that we kept getting over and over again over the years was, hey I think a 2, 3, 4 x annual multiple and profit is really attractive. I want to buy these businesses. I have capital to deploy. I invest in passively. How about I buy one of these businesses and you guys run it for me?

[00:29:32] Mike Vranjkovic: And the answer was like, no, get out of here. We don’t do that. Or like, can you match me up with somebody where it’s like, well, not really. I can’t really vouch for them because I dunno how they would be as an operator. So we heard this question over and over again for many years. So we had all this unmet demand of people that wanted to passively participate in these online businesses without having the skillset or without having the time to actively manage them.

[00:29:58] Mike Vranjkovic: And we already had an audience of people that know how to manage these businesses because we had a marketplace where these businesses are being bought and sold. And like I mentioned earlier, a lot of the sellers are repeat sellers. So they’ll go out, build one of these businesses, sell it, they might buy one, grow it and sell it.

[00:30:17] Mike Vranjkovic: Oftentimes we saw the same assets being bought and sold multiple times, and we could see exactly how it was doing. So we had this market demand invest passively. We had this large audience of people that knew how to run these businesses, and then we had this light bulb moment, I don’t think you can even call it a light bulb moment.

[00:30:33] Mike Vranjkovic: It was alright. We finally decided to do what people were asking us for years to do. And then we launched WebStreet or formerly Empire Flippers Capital Standalone Company. Initially shared a lot of the resources with Empire Flippers, but now completely standalone. No shared resources and businesses from anywhere, including other brokers.

[00:30:52] Robert Leonard: So explain exactly how it works from the investor side, maybe as the portfolio manager or the, basically the property manager, if you will, of the asset that you guys buy, break down that process for us. 

[00:31:02] Mike Vranjkovic: Yeah. So it’s fairly simple. When we designed this we, we rolled it out in phases and we tested through it.

[00:31:08] Mike Vranjkovic: And one thing that we wanted to do from the beginning was try to line up everyone’s interest. We go out portfolio managers, And then line up the investor’s interests, the portfolio manager’s interests and our interest. What we do is we go out and raise money from investors, mostly accredited investors.

[00:31:28] Mike Vranjkovic: We recently opened up a crowdfunding test that we might continue, mostly accredited investors, so high network individuals looking to deploy capital. Our average is probably 50 to a hundred grand from the accredited investors. So first we go out and we find portfolio managers. We look at a track record of building these businesses, buying them, growing them, running them, and selling them.

[00:31:49] Mike Vranjkovic: And we look at a lot of portfolio managers and we admit a very small percentage. Once we have our portfolio managers, we’ll go to our investors and say, Hey, these are the four funds that we have open right now. We these four portfolio managers, You can invest in these four different funds for say, 50 grand.

[00:32:07] Mike Vranjkovic: I’ll get you a stake in each fund. And each fund is going to buy multiple assets and the funds are different. So one might be a content fund, one might be an FBA fund, one might be a Kindle fund, one might be a software fund. And then the investors give us the money. Then the operators for the portfolio managers go out and buy these businesses.

[00:32:26] Mike Vranjkovic: We, we, of course, have oversight. We make sure that whatever investment criteria they laid out to investors, they will buy those businesses. So if there’s a guy that has a deep experience in contents businesses and he comes across an eCommerce, FBA business veto something investment. And then once these businesses are bought on a regular, quarterly basis, the profits are split with the investors.

[00:32:53] Mike Vranjkovic: So the investors keep two thirds of the profits and one third goes to the operator and ourselves. So, the attractive thing here is if you buy a business at three x annual, if you get to keep a hundred percent of the profits, You would be making, what is that, 33% a year. If you give up one third of the profits you’re making about a little bit over 20% a year, which are still really attractive returns for a passive investment.

[00:33:17] Robert Leonard: What are you seeing as the best opportunities today? Both maybe what you think personally, do you think content sites, affiliate sites, maybe SaaS tools, Kindle. D to c e-commerce, FP&A, like do FP&A. Do you like those personally? And also, what are you seeing for investor appetite? Like what are investors coming to you saying they want, which type of these assets do they want most?

[00:33:39] Mike Vranjkovic: Good question. I get this question all the time, or I used to get it all the time when I would talk to investors more. And the answer is always don’t try to pick a winner. So if you’re a passive investor,

[00:33:58] Mike Vranjkovic: Or whatever the case is because they all have different risk factors and we’ve covered a lot of these risk factors already. So I think the key here would be diversification. I’m very bullish on FBA that’s actually my background. I went and started multiple Amazon FBA businesses and I have some good experience with that, and I’m very bullish on that business model as well.

[00:34:17] Mike Vranjkovic: STAs, of course, with the reoccurring revenue stream. So I would say if you’re if you’re looking to do this as a passive investment, try to get exposure to multiple different business models. If you’re looking to get into this and buy these businesses or build these business from scratch yourself, my advice would be the opposite, because somebody that’s good at running a e-commerce FBA business, it’s completely different skillset than running a content business.

[00:34:41] Mike Vranjkovic: So I, I would say if you’re looking to build them, run them yourself. See what skillset you have compared to what’s required to run these businesses. Effectively, if you’re looking to passively invest, you should be monetization agnostic. You should be just spreading out your investments over multiple different managers, multiple different monetizations and risk factors and so on.

[00:35:03] Robert Leonard: I personally think content sites and affiliate sites are like a good place to start. I’m not saying you have to do that like as an investor, but I’m saying if you’re interested in starting one of these businesses, I think that’s a good place to start because then you can, for me at least, it opened the world of like all of these opportunities.

[00:35:16] Robert Leonard: I had no idea of what was possible, the monetization strategies, how you can get traffic, like so much stuff that I learned from doing those two things that are, you can scale them to be massive. I have a friend of mine who sold a content site for a million dollars. So like it can get big, but if even it’s just a stepping stone, you can learn so much there.

[00:35:35] Robert Leonard: And maybe you go do e-comm and D two C stuff and you could take some of your SEO knowledge and traffic acquisition and drive that to an e-comm product and do a D C model. So I think you can learn a lot from content and affiliate sites that you can use in these other models. 

[00:35:50] Mike Vranjkovic: I completely agree.

[00:35:51] Mike Vranjkovic: I think the skillset that you learn in running content businesses and exactly like you said, you might continue running content businesses and there are some very large content businesses like we talked about with Red Ventures earlier. But even if you decide to pivot in a different direction, that will be a useful skillset.

[00:36:06] Mike Vranjkovic: I know a lot of people personally that run service agencies and that get a lot of their clients through content marketing from their past experience running content sites. 

[00:36:17] Robert Leonard: Absolutely. I’ve seen that as well. I’m curious, tell me a bit about your FBA experience. What have you done personally? What were the products?

[00:36:23] Robert Leonard: What’d you sell? How did that go? Just tell me a bunch more about that. I’m interested. 

[00:36:27] Mike Vranjkovic: Joined the Empire Flippers. My plan was always to go out and start my own business. Really enjoyed what I was doing with Empire Flippers. I ended up staying there for much longer than expected.

[00:36:36] Mike Vranjkovic: Eventually left, started my own Amazon.

[00:36:43] Mike Vranjkovic: It just did really well out of the gate, and I was like, wow, this is amazing. This is so easy. And then the product got absolutely crushed like a few months later. And then it went from doing really well to losing money consistently. And then it launched many more different products after that.

[00:36:59] Mike Vranjkovic: Probably making every mistake in the book that you. And then after a few iterations, after a few tries, we finally managed to figure it out. So leftover today I have two Amazon, FBA businesses, one in the kitchen supply niche, so boring products that restaurants buy. And then one in the fitness niche like the medical device, fitness niche.

[00:37:22] Mike Vranjkovic: That’s the bigger one of the businesses. I’m not actively involved in either one anymore. I have a business partner that runs all the day-to-day operations, and we have a team in place. So for me, at this point, I’m more of an advisor or strategic investor. I still won’t have the businesses, but now I’m passively involved in it.

[00:37:38] Mike Vranjkovic: It’s also a good way for me to get an inside look at latest Amazon.

[00:37:45] Mike Vranjkovic: When we launched these businesses, we launched them quite a few years ago. The market has definitely changed a lot. It has become more competitive, specifically, it has become more difficult to launch new products without an existing audience. So more difficult in terms of, let’s say you have whatever product than Amazon and you’re trying to get it to rank just like you’re trying to get your website to rank in Google course.

[00:38:08] Mike Vranjkovic: Amazon’s algorithm is differently. It works differently. You’re trying to get the reviews, you’re trying to get traffic to your Amazon page and so on. That part has become more difficult than it was five or six years ago. It’s become more difficult to pick up reviews, so as it’s gotten more difficult to launch new products, less competition has been entering the space and as less competition enters the space, owning one of these Amazon FBA businesses is actually more valuable.

[00:38:34] Robert Leonard: One last thing I want to touch on that listeners might have picked up on is that Mike didn’t necessarily mention the exact product or for either of the businesses and one of the things. That really surprised me when I got into this business was that people are very secretive and this is nothing like against you, Mike.

[00:38:50] Robert Leonard: This is just how the industry is. Is that like when you talk to other people, they might, they’ll tell you they own a content site or an affiliate site and they’ll say, okay, maybe it’s in the automotive niche or it’s in the home niche, or the fitness niche or whatever. But they very rarely disclose what the actual website is.

[00:39:05] Robert Leonard: And it sounds like it’s the same for FBA businesses and things like that, just because, and for listeners, it’s because there’s so much competition and a lot of people have seen. It’s not that hard to just literally copy and paste somebody’s blog post onto their own website and essentially steal everything that somebody else done.

[00:39:20] Robert Leonard: And I like to think people wouldn’t do that, but people do that. And a lot of people have had that experience. So that’s why it’s very surprising to me when I came into this world in this industry to see how kind of closed knit it is in terms of like what people are actually working on. 

[00:39:33] Mike Vranjkovic: Well, in fairness, some of the guys are nuts, won’t.

[00:39:38] Mike Vranjkovic: There’s millions of products in the kitchen that you won’t even tell me what industry it’s in. So some guys definitely take it too far. But we even do the same precautions in our funds. So as an investor, all the assets being bought, you have the website URLs, you have the link to the Amazon storefront, so you could see the products, you can see everything that’s going on.

[00:39:55] Mike Vranjkovic: But with new perspective investors, we have all of reports and.

[00:40:05] Mike Vranjkovic: We’ll just say Content asset one. Content asset two, FBA asset. One. It’ll have all the relevant financial data, but it won’t have the information that identifies it. 

[00:40:15] Robert Leonard: That was really interesting to me when I came into this industry, so I wanted to make sure we mentioned that to people that are listening that are maybe just hearing about some of these ideas for the first time.

[00:40:24] Robert Leonard: Mike, I really enjoyed our conversation. Like I said, this has been a topic of mine that I’ve been researching for the last year pretty heavily, and I’ve been really passionate about it, so I really enjoyed chatting about it and I hope the audience enjoyed it as well. For anybody that’s interested in learning a little bit more about your fund, what you guys got going on, more about these types of businesses, where can people go to find you and follow along?

[00:40:44] Mike Vranjkovic: Yeah, go to our website, webstreet.co, so webstreet.co . If you’re interested in being an investor, if you’re an accredited investor, high net worth individual, like I mentioned earlier we are testing through a crowdfunding option. Depending on when this gets published that may be open by then or not.

[00:41:06] Mike Vranjkovic: And then of course we have a two-sided marketplace, so we’re always looking for very experienced portfolio managers that are running their own portfolio of online businesses and that are looking to run a investment fund through WebStreet. Or if you just want to generally learn about the industry we’ve been publishing more and more content on how it works, I’d say check out our blog.

[00:41:26] Robert Leonard: Yeah, definitely. I recommend people listening. Go check out WebStreet. Even if you’re not an accredited investor you’re not going to be a portfolio manager, you’re not going to make any investments, but you’re interested in learning more. Go check out their website, they have some cool info there. Go check out Empire Flippers as well.

[00:41:37] Robert Leonard: A lot of cool, just see what the opportunities are. 

[00:41:41] Mike Vranjkovic: One thing that I recommend to people that are looking, so oftentimes I talk to people that are looking to build their own online businesses or. That are just starting out or that are somewhere along in the process and they have no interest in investing simply because they get a much better ROI on putting it into their own business.

[00:41:56] Mike Vranjkovic: And if you have the opportunity to do that, you should definitely do that. The only time you should think about investing is if you want to diversify or you can get a better ROI or you. Or you. Or you want to be passive, you can’t deploy. Yeah, exactly. Or you want to be passive or you gotten to the point where you can’t deploy any more capital into your business.

[00:42:10] Mike Vranjkovic: Even those people, what I would recommend for those go to our past investment deals, those obviously no longer open for investment because they’re closed, and then go to each investment deal page and you can see a interview with the operator, with the professional portfolio manager, and we’ll ask them a number of questions.

[00:42:27] Mike Vranjkovic: What type of assets are you looking to buy? Once you buy these assets, what strategy are you going to use to grow them? What strategy will you implement early on? What strategy will you implement later? What type of risks do you look out for? So depending on whatever you’re interested in, whatever flavor or monetization of online businesses, you might be able to find some interesting info in there.

[00:42:45] Robert Leonard: I like to do the same thing. I’ll go to Empire Flippers or I’ll go to other brokerages or marketplaces that sell these businesses and I’ll go on there and I’ll see like what businesses are selling, how much they’re selling for, what they’re doing right, how they’re making their money, what they’re, and just kind of do like an autopsy, if you will.

[00:43:00] Robert Leonard: But even though they’re still alive, it’s still business, it’s still working. Like I try to dissect it as much as I can. To learn from a business that’s being sold. I could see how much it’s selling for and just learn from it. So yeah, go to your website, check all that out. And yeah.

[00:43:12] Robert Leonard: Mike, thanks so much for joining me. I appreciate it. 

[00:43:14] Mike Vranjkovic: My pleasure. Great talking today. Bye-bye. 

[00:43:17] Robert Leonard: All right, guys. That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week. 

[00:43:23] Outro: Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network.

[00:43:31] Outro: Every Wednesday, we teach you about Bitcoin, and every Saturday, we study billionaires and the financial markets to access our show notes, transcripts, or courses. Go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network.

[00:43:53] Outro: Written permission must be granted before syndication or rebroadcasting.