E2 Part 2: Ewen Finser on Incubating Websites for Maximum ROI

This is part 2 of episode 2 of the Website Investing Podcast for paying subscribers. (Part 1 here).Let’s continue the conversation with Ewen Finser from Owl Mountain.How the capital is investedThe $15K invested into content gets Ewen to around 100-120 pages of content, which gets to 10K sessions a month. Then the additional $20K gets put into the site in a similar fashion ending up with around 300 pages.Pillar articles are typically around 3K words to be the comprehensive resource on the topic, then after that ~ 2K words per article. Ewen uses Marketmuse for content length and content quality score (prefers to SurferSEO which I use). GoalsThe aim for these sites is:1) After year 2, they are self-funding and do not require any further investment, i.e. break even based on annual cashflow.2) After year 3, the cashflow generated will also have paid off the $35K investment3) The asset value should break even at year 1.5 to 2. This is the exciting part for Ewen, i.e. when do they cross the value threshold of sites worth more than the dollar invested.4) Between years 2-3, the asset value should be double the $250K invested, i.e. at $500K.5) Between years 3-4, the 5 sites will have returned over $50K in income each which, with the asset value, totals $750K for a 3x return on invested capital (ROIC)Deploying the mothershipEwen is planting flags in niches he has had experience in, where he will end up with a main authority site which will give him the ability to find green shoots in the sub niches that he can launch as micro-targeted separate sites. He talks of creating five or six targeted lucrative sites that they have validated with the big mothership site, like owning multiple gas stations in a neighbourhood. With the recent change with google featured snippets, where you can’t rank top and have the snippet at the same time, having multiple sites in a niche makes even more sense.When to exitHe is probably going to exit 20-30% of their portfolio at year 3 and beyond, selectively taking risk of the table.Internal operationsHis internal operators are growth managers and editors who are paid a fixed rate. With external operators, rather than get into complicated operator models where the investor may feel the operator is charging too much, or are only being incentivised on the upside (i.e. if the site goes down they have no incentive to stick around), Ewen has a structure where the operator gets 50%, but only after certain hurdles are met. Until 1x their capital is returned, there is a 90% preference to the investors with distributions. Then you unlock a different cap table, and once 2.5x investor capital is returned, 50-50 is in effect. This helps protects the downside. You can also do distributions plus asset value in terms of total capital returned.Redistributing capitalBecause Owl Mountain manage operations when building in-house, they can use portfolio theory to dynamically redeploy capital into sites that are performing far better, to achieve even higher ROIs. This is not possible with operating companies who are managing sites and capital on behalf of investors, i.e. they can’t focus on winners, in fact they are likely focussing more energy on losers so that they do not lose management of the asset.Owl Mountain is going to develop a stable of operators who have different specialities who are building out their funds and incubators in their relevant fields, i.e. FBA who can be added onto content affiliate sites.When things go wellOne of Ewen’s biggest successes in a “right time right place for the niche” was a site started in 2012 where he only published content and did zero back linking; five years later in 2017 it had 450 articles, was doing $300K in annual profit. He exited for 3.5x multiple in early 2018 for a 7 figure outcome. He put in less than $1K into the site as wrote the content himself ( like I did with my software review site which had a $100K exit). If you were to cost up the content (assuming 2000 words per page for 900K words at 5c per word) for $45K you get to a 20x plus return.Ewen considers building as a 5-10 year play, snowballing capital - it’s not a yield play or a flip play.Monetization / RPMEwen used to have a portfolio weighted 80% to amazon associates, in terms of monetisation, and now he’s flipped that to around 20-25% with the vast majority being direct affiliate relationships who will give you more metrics from their affiliate dashboards (such as eCPM), and give you the potential to negotiate better rates which builds a better moat.Ewen has an approximation of $RPM for each site before he launches. The baseline RPM he uses is Mediavine which is anywhere from $15-$50 per 1000 visitors (just advertising) then if you add in affiliate you can double that. Combined, we think $50 RPM is a good floor assumption but aiming for $100 [this was recorded before the Amazon commission reduction].Niche researchIf a niche only has a few head terms, each of which are less than a thousand volume per month, Ewen would be hesitant to enter that space.Sites for finding niches that are trending up he mentions are meetglimpse.com and explodingtopics.comYou need your own P&LWe end with a discussion around how the current P&L for a potential acquisition is irrelevant and how you need to forecast out your own P&L and make an offer based on that.Contact EwenAs Ewen isn’t a self-proclaimed guru he does actually have time to speak with investors and can be reached at [email protected] or on Linkedin. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit investing.substack.com