Donuts Raises More Than $100M to Operate New Web Domains

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The startup Donuts Inc. has raised more than $100 million to purchase and operate domain extensions.

A group of investors has bet more than $100 million on Donuts, a startup that’s aiming to make a lot of dough from the expansion of Web domain names beyond .net, .org and .com.

The Bellevue, Washington-based company has applied for 307 so-called top-level domains, which help classify groups of websites, said co-founder Daniel Schindler. He declined to disclose any of the names Donuts is seeking. While the company won’t sell domain names directly to consumers, it will broker them to registrars like GoDaddy.com.

The Internet Corporation for Assigned Names and Numbers, the organization that manages the Internet’s address system, plans to publish the list of applied-for domains on June 13. Once ICANN decides on which names to approve, it will hold auctions for each one. Donuts is expected to pay $56.8 million on application fees alone, based on the $185,000-per-submission cost.

“Never before have there been this number launched at the same time, and that brings challenges with it,” Schindler said. “We want to make sure we have the resources to market our domains and make them successful.”

The new digital real estate has drawn the attention of several big Internet companies. Google has applied for domains that end in .google, .youtube, .lol and others. GoDaddy, the largest reseller of Internet domains, has applied to operate .godaddy, .home and .casa.

“You don’t find that many recurring multibillion-dollar market opportunities somewhat ripe for restructuring,” said Chris Pacitti, a general partner for Austin Ventures, which led the financing of Donuts. “We think it’s a very attractive market.”

Adams Street Partners, Emergence Capital Partners, TL Ventures, Generation Partners and Stahurricane also invested in Donuts.

Over the standard 10-year top-level-domain contract, the company can expect to pay at least $2 million to operate each one, said FairWinds Partners’ Phil Lodico, who consults businesses on operating Web domains.

The success of Donuts’s assets will rely partially on how the domain retailers choose to promote the names, and whether Internet companies and Web surfers are comfortable visiting websites that don’t end in .com. Donuts will spend on advertising its names, said Schindler, the company’s head of sales and marketing.

Donuts was started in November 2010 by four men who together have decades of experience in Internet domain management. Among them, Schindler was the chief executive officer of domain-registry CentralNic, and Paul Stahura, the Donuts chief executive who invested money through his own venture fund, previously ran domain registrar ENom before selling it to Demand Media in 2006.

“Our confidence was greatly increased by the team,” said Pacitti, from Austin Ventures. “They will have a unique access to capital.”

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