by Tsani Exchanging a domain name for equity or hybrid compensation often requires more than a handshake. Founders considering this route typically work through a simple term sheet before the legal docs follow. The structure doesn’t need to be complex, but certain elements help avoid misalignment later. Below is a suggested outline that reflects common patterns in domain-for-equity agreements.
1. Describe the Domain Asset Clearly
Most term sheets begin by identifying the domain or set of domains involved. It's common to see registrars named, ownership representations stated, and any linked IP (e.g. trademarks, redirects, email rights) outlined. Some founders choose to include clauses ensuring the domain is free of claims or disputes. Language varies, but framing around “exclusive right to transfer” is frequent.
2. Outline the Consideration Structure
Consideration in these agreements tends to take the form of equity, cash, or a combination. Equity-only arrangements are rare in later-stage startups, but can appear in early-stage deals. In mixed cases, terms might read: "$50,000 in cash and 2.0% of fully diluted common shares," with payment and issuance mechanics clarified.
Equity grants often include:
• Share class (e.g. common vs. preferred)
• Pre-money valuation (or implied share price)
• Vesting terms or milestone triggers
Where founders structure reverse vesting or delayed issuance, that detail usually appears here. Some choose to specify repurchase rights, should milestones not be met or funding fall through.
3. Define Milestones or Vesting (If Applicable)
Domain-for-equity deals often include vesting terms to align long-term interests. Vesting sets when and how ownership of equity is earned, typically tied to milestones such as a funding round, product launch, or continued use of the domain. This structure keeps both parties aligned, protects founders from overcommitting early, and assures domain holders that their stake grows with the company’s real progress.
4. Transfer and Closing Mechanics
Many term sheets note how and when the domain is to be transferred. Phrases like “domain to be pushed upon payment confirmation” or “escrow release triggers registrar handover” are common. Some founders prefer to specify registrar details, lock status, and required authentication codes.
Escrow is frequently recommended for managing both the domain and any cash involved. Where equity issuance is involved, founders might include timing for share delivery and who bears administrative costs.
5. Reps, Warranties, and IP Terms
Some term sheets incorporate light representations. These often include:
• The seller warrants they are the lawful registrant
• The buyer is authorized to issue shares
For more sensitive names, trademark clearance or infringement disclaimers may be introduced. Though reps in term sheets are typically not enforceable until the final agreement, including them helps align expectations.
6. Dispute Resolution and Other Terms
Founders often include a governing law clause and a short statement on how disputes will be resolved, typically through arbitration or confidential mediation. Jurisdiction is usually set to the buyer’s HQ state, unless otherwise negotiated.
Where confidentiality matters (e.g. domain price not yet public, stealth startup), a mutual NDA clause may also appear.
Some founders indicate the term sheet is non-binding except for specific sections, while others use the term sheet to guide a later binding contract. It’s often left to counsel to finalize.
• Asset: [Example.com], to be transferred upon payment
• Cash: $50,000 via escrow
• Equity: 2.0% of common shares (fully diluted)
• Vesting: 50% at funding round, 50% one year after
• Reversion Clause: If no funding within 12 months, seller may reclaim domain
• Transfer: Transfer with auth code upon escrow confirmation
• Jurisdiction: Delaware, arbitration preferred
Sample Outline: Equity- Only Scenario (Excerpt)
• Asset: [Example.com]
• Equity: 1.5% of common shares
• Milestone Trigger: Equity vests upon launch and Series A funding
• Transfer Terms: Immediate domain transfer via auth code; equity delivered post-launch
• IP Reps: Seller warrants clean title and transfer rights
What Term Sheets Tend to Avoid
Long technical clauses, complex IP indemnities, or unclear price mechanisms can slow a deal. Founders often opt for simple structures with room for later negotiation. In some cases, terms like repurchase rights, revert clauses, or board approval conditions are negotiated separately.
Final Thought
Clarity and structure in a term sheet help founders and domain holders move forward with shared expectations. Though the final purchase agreement adds detail, early alignment on essentials (asset, consideration, timing, and usage) often determines whether a deal closes smoothly or falls apart.
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