Why Cover Spent $825,000 Buying COVER.COM And Why It’s Not For All Start-Ups

Technology company and US-wide licensed insurance brokerage firm Cover recently spent $825,000 buying the domain name cover.com. The company has a number of apps that help customers get the most out of their insurance, the best possible customer experience, and the best rates and coverage. But it took discussions that went over a few months to decide if they would go for the domain name that, to them “just made sense”. In the insurance industry companies use “every permutation of the word, so why not own the word outright?”

Cover.com would place as 2017’s ninth biggest reported sale (there are many other domain name sales that are not reported) on the Domain Name Journal sale chart.

In a post explaining why Cover bought cover.com on the Entrepreneur’s Handbook, Karn Saroya, co-founder and CEO, said the decision “was very calculated and thought-through over the course of the prior couple of months.” He also says “in retrospect, it proved to be an excellent move for us — but one I would strongly caution other founders against, for reasons that I hope will become clear.”

“Sure, we would save money buying the dotcom domain for an alternative brand, but we also saw the long-term value of owning one of the most coveted domains in insurance. This struck us as the bigger opportunity.

“We realized that despite all the obstacles — and costs — involved with committing to Cover as our brand, it was that the path of least resistance.”

With the decision made to go for it, a trademark was filed with the United States TPO for Cover, social media handles were sought and background research done on who to buy cover.com from. They found the registrant “had effectively built an entire business on acquiring these one-word domains.”

Insurance domain name brokers were sought out, with mixed results with initial guesstimates of $1.5 million to $2 million plus 10% brokerage fees. That was too expensive. Cover’s investors put them in touch with people “who could do the backchanneling for us.”

An opening bid of $250,000 was laughed at. “They counter-offered with $1.5 million and then $1 million, but it was still more than we were prepared to pay.”

“After a period of radio silence, we finally got the call proposing the price we would ultimately settle on. We would pay $750,000 plus commission between the two brokers, adding about $75,000.

“A little nauseous, we wired the money then crossed our fingers. Less than 24 hours later the domain was ours — and with it a feeling of mixed relief, excitement, and the need for a stiff drink.

“All told, agreeing on a price took about a month of back and forth, but we were finally in a position to build our company and our brand.”

A year after the purchase and Saroya writes “Cover has scaled significantly and recently closed our Series B funding round. Each week that passes only further vindicates our decision to commit to the brand name.”

Saroya writes that Cover sells “an intangible product and at the end of the day, we’re in the trust business. Owning Cover.com has lent an extra level of legitimacy to the brand and this, in turn, has translated into sales.”

“We have seen firsthand how it helps get people over the hump when it comes to investing their money with us. Immediately after moving to Cover.com we saw our conversions rise, largely because customers would cross-reference our app on the internet before they made the purchase decision.”

The purchase was worth it for Cover, but Saroya says it’s not a course of action he recommends for all start-ups.

Saroya goes on to conclude that Cover “found ourselves in a relatively unique situation that most tech companies don’t find themselves in.”

“This is the most important lesson for other founders to glean from our experience. We didn’t buy the domain just because we were married to the name and refused to change.

“The importance of the domain to our industry meant there was a clear financial and strategic merit to the purchase. This is what decisions about your domain and your brand should be based on.

“If you’re early stage and you’re just trying to figure it out, you don’t need to spend on an expensive domain. It’s a lot of money and, at that stage, you have the freedom to rebrand instead.

“What we did might seem contrary to the Y Combinator ethos which emphasizes not spending money on frivolous things. But in my mind, for Cover, it wasn’t a frivolous thing. It has become an important and valuable asset in the context of our business.

“Right off the bat, it felt like a shrewd investment. I knew that, in the right hands, the value of Cover.com would become exponentially more valuable. This is exactly what we’ve seen as we have used it as a platform upon which to build an insurance business.”

To read the post on the Entrepreneur’s Handbook blog by Karn Saroya, co-founder and CEO of Cover, in full, go to:

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