Groupon Authorizes $950 Million Series G | Hacker News Reader

Groupon Authorizes $950 Million Series G

vcexperts.com

A billion in VC? Or could that just be the high end of a range that they're preparing for? I'd never heard of a round done for that much so I went looking.

Only clear has ever taken on more VC than that in total after combining all their rounds... but apparently much of that was from industry partners, and they had a lot of spectrum to buy in small chunks. The second highest company in terms of total raised comes in just below the size of this round alone, with $949.85M.

In googling to find that list I came across another fact... 1 Billion more or less matches the total amount of foreign VC expected to flow into all of India in 2011.

  Clearwire			$1,299.50
  Solyndra			$949.85
  Western Integrated Networks	$889.00	
  MetroPCS Communications	$733.10	
  Facebook			$677.70	
  Reliant Pharmaceuticals	$574.15	
  WildBlue Communications	$557.99	
  Force10 Networks		$553.42	
  Better Place			$550.00	
  Grande Communications Netw.	$507.40

http://blogs.wsj.com/venturecapital/2010/06/01/the-top-10-ri...

Two Anecdotes:

1) I'm hanging out with Family in Abbotsford, British Columbia, and wherever I go browsing, I'm getting Groupon Ads for interesting things to buy in Abbotsoford. I've been half tempted (for the first time in a long time) to click on these ads. There is 0% chance I would have considered going to these places without those ads. If I find something new and interesting, there is a very good chance that I (or my family) will return as repeat customers.

2) My mother, is trying to figure out how to attract new business into her Coffee Shop for a new line - just to let people know it exists, and is considering a groupon deal.

If, in fact, groupon has a sustainable profitable model in their existing markets, and the $950mm Series G is there to expand the same model into other markets, and, if they have no entrenched competition in those markets - then this move makes absolute sense.

Time will tell if all of these conditions hold true.

one anecdote: I've bought into 3 different groupon deals. Yes they were things I probably wouldn't of done on my own, and after trying them..I realized why I wouldn't of done them on my own and really had little interest in them other than thinking of doing it because it was a good deal. Sort of expensive way to learn what I don't care for.

I have yet to buy a groupon, but I keep looking daily - I got some groupon gift cards.

There seems to be way too many ads for spas, salons and the like, which do not interest me, yet they seem to attract tons of buyers..

If you have an account you can specify your preferred types of deals in your profile.

The expected lifetime value of a custom acquisition is so high for these services that Groupon makes sense even if the conversion rate is < 5%. And, since most salon owners can push the risk downward to their commissioned (paid by the job, really) staff, there's even less disincentive. Only the staffers still trying to build a book of business will accept Groupon customers, and those employees' opportunity losses are low because they end-up sitting around between clients anyway. So, the risk/reward trade-off of using Grupon in these industries is quite good.

The number of spas/salons annoys me too. I've found that Living Social has had more local restaurants than Groupon in my area (LA).

Another anecdote: most people I've talk to recently outside of the startup/valley/tech scene have heard of Groupon and many of them have used it. My parents have been using it since before I had even heard of it.

But I still think they're crazy for turning down $6 billion from Google.

> My mother, is trying to figure out how to attract new business into her Coffee Shop for a new line - just to let people know it exists, and is considering a groupon deal.

Have you read the cautionary tale from Posies Cafe? There will be tons of people who will try the new product, but most of them won't stick around long enough to pay full value. Gotta be careful with this form of advertising. (Disclaimer: I know the owner of Posies.)

http://news.ycombinator.com/item?id=1698833

It's the footraffic version of Digg. Publishers never figured out how to convert Diggers into return visitors. Then again, Groupon appears to be working harder on that front than Digg did.

Yes, Groupon is the brick-and-mortars version of Digg. But I will point-out that Digg links are good for SEO, so there is at least some degree of permanence. I guess the Groupon equivalent would be word-of-mouth referrals, though I'm afraid that many reviews would be, "I went to this awesome place [only after artificially lowering the price] that I found on Groupon". The implied sweet deal from Groupon might be something that other potential customers would expect as well before trying a new place out.

I respect that Groupon has more resources available for businesses than Digg had for publishers. I still don't hear many stories about businesses BUILDING THEIR BUSINESS through Groupon. I respect the heck out of what they've done, but don't see how it can last 4-5, 10 years once the fad wears thin. Feels like tulips, not railroads.

Yes, in fact if you notice, I'm one of the top commenters on that thread - it's how I discovered most of what I know about Groupon, in fact - reading that story, and hearing about other ycombinator comments informed my thinking.

I don't really understand how any small business who spends more than 10 minutes googling can spend unwisely with Groupon. My mother and her partner identified a ton of concerns they had with groupon in about 60 seconds, and how they would deal with it. Small business owners are amazingly sophisticated when it comes to these types of deals. (With the exception of the $1400 on Door-Knockers they spent 5 years ago, that didn't show a great conversion rate, and I hear about every time I visit.)

Here are some of the issues they brought up:

o How badly will her regulars be impacted by a huge surge in business.

o Will their "vibe" be negatively impacted by large crowds of people (she runs a very intimate coffee/tea shop)

o How should she price her product so that a 5% conversion rate shows an ROI in about 6 months.

o How much staff should she have on hand the week following the Groupon to make sure that they can handle the business.

o How much should she spend on collateral, marketing, packaging to leverage these new people, and convert them to regulars.

o Preparing the staff for the lousy tipping (Though, they already knew people coming in with coupons never, ever tip)

I'll report back if they execute their groupon. Be interesting to see a real world execution from the side of the small business.

Ah, I hadn't compared usernames.

Your mother thought of some very detailed gotchas. I too would be interested to hear how it goes in the end.

Good anecdotes, but whether people use Groupon isn't really in question (this question typically gets resolved when companies do their A round, not their G round).

The question with Groupon is whether their model is defensible; that is to say, is it possible for 100 competitors to spring up and chip away at their business (or would it be possible for Google, eBay, or another BigCo to leverage their existing users to take a large chunk of their business in a short time).

Of course we don't have all the variables here, but this doesn't seem like a very good move from an outside observer. If groupon is making hand over fist in cash, and has a healthy cash flow, part of me is wondering why they couldn't use that to steadily finance overseas expansion?

I understand VC's desire to get in on the ground floor of GroupOn's meteoritic growth, but giving them a billion dollars of cash right now doesn't seem like right play here.

Get big fast might of worked for a select few dot coms, but it certainly didn't work as a general rule.

I can give you an anecdote as an answer

Here in Israel, there are dozens of Groupon clones, which are extremely popular. But Groupon isn't here yet.

It's a land grab game, and in this business, growing fast matters.

Good point.

I guess the thing I would caution about is expanding fast vs. executing well. Hopefully they learn the lessons in the Yandex vs. Google and Amazon/Ebay vs. Tao Bao fights.

Facebook did execute on a very successful international strategy - but from my understanding they didn't need a billion dollars to do it. GroupOn's economics might be different - time will tell.

Remember the facebook world map? http://news.ycombinator.com/item?id=2002742

See the dark area in Russia? Vkontakte got to Russia first.

LivingSocial, a Groupon competitor, is expanding aggressively.

http://livingsocial.com/jobs

The idea behind Groupon (spending marketing dollars on customers instead of media) is changing the face of commerce worldwide. No matter what Groupon does, that cat is out of the bag.

It's up to them to make sure they capture as much of that value as possible. That takes a lot of money but if they succeed, it will be worth it. The chances are not small that Groupon will be a $100B business in a few years.

The guy who owns the salon where I get my hair cut probably wouldn't do a Groupon deal because of adverse selection effects -- he would be worried about attracting a bunch of cheap people who wouldn't pay full price for his premium-ish services and, by virtue of buying into a Groupon, don't have loyalty to their stylists. However, he is willing to discount services to customers who are likely shopping for a new salon. A few years ago, he signed-up for a service which would send an elaborate snail mail invitation for a set of heavily discounted salon services to people who recently bought homes in certain high income zip codes around his business. He owns some pretty sophisticated salon management software which can track conversion rates (and therefore lifetime customer value). I think he wasn't getting enough conversions to justify the price (a few dollars/invite), but he'd be interested in other such services with the proper selection biases.

Could someone compete with Groupon by offering very selective discount offers? How much would it be worth for Grocery Store A to target those who shop primarily at Grocery Stores B? Could Visa use its credit card data to build-up such a list? Could it legally use that list to drive such marketing endeavors? Would consumers opt into having their purchasing data used in that way if it meant being offered amazing deals from time to time? How else could one offer up to businesses highly selective campaigns? The problem with Groupon is that it attracts customers who aren't especially valuable, and businesses have to hope to pick up the minority of those who represent profitable new business.

Senior in liquidation preference to all other shares? They can do that?

I'm presuming that sufficient voting representation of the other tranches are required to do so.

It's reasonably standard. The last money in gets to be the first money out. It solves the problem of a startup taking money from a new investor and then immediately disbursing it to the old investors (or other similar shenanigans).

The existing shareholders have to vote to approve the new round. They wouldn't do so unless they thought it overall worthwhile.

Yet another reason for startup employees to not value equity as part of the compensation package. You can be offered 0.1% of a company at a $100M valuation, have it exit for $1B and be left with nothing for your trouble because of liquidation preferences & dilution.

So does that kind of confirm that the founders are already cashed out?

Nope. From what I've heard it is standard practice for later rounds to dilute the investors from previous rounds.

Well, it looks like they cashed out.

http://techcrunch.com/2010/12/30/groupon-insiders-345-millio...

It could point to that. The founders wanting to take some home with them after a 6 billion dollar offer is likely. I'd pocket a cool $50mm. It would keep my head in the game, but it would definitely let me sleep better at night in case it turns out to be a trend, rather than a sustainable business.

Local advertising will be as big (if not bigger) than AdWords, ergo Groupon is the new Google. No wonder they turned them down.

Google isn't AdWords, Google is search (and now, the web). Search > Coupons. Google > Groupon

What if the argument was Groupon was local search?

From a revenue driving. Local Search > Search, Local Couponing > AdWords. Therefore, Groupon > Google.

Look at how Groupon is driving most of their traffic right now...250x250 AdWords ads.

If you could show me how Local Search could exist outside of search, then you might have an argument, but right now, I just don't see it.

Google can't exist outside of the power company. Does that mean the power company is bigger than Google?

Google can't exist outside of the power company.

I doubt very much that Google doesn't generate at least some of their own power.

I'm quite confident that they can exist outside of any single power company.

Does the analogy hold after this premise is eliminated?

The analogy does hold up, because it doesn't rest on the specific quibbles you brought up--namely that Google has more of a monopoly on web advertising than Google's power company has on power. It rests on the fact that a company's dependence on another company's services says nothing about which company is bigger than the other.

I understand the point, which could very well hold up, but does the analogy?

Saying that the analogy (argument) rests on "the fact that..." pretty blatantly begs the question.

Is there a case where one company is both bigger than and wholly[1] depends on another, single company's services?

I would be unsurprised if the answer is "no" and that this is the case because dependents are invariably absorbed or killed off by the "parent" before they can grow larger.

[1] If the issue is monopoly, then my "quibble" is that, to Google (or any other electricity consumer beyond a modest size), no company has a monopoly on power.

By handwaving and hyperbole Google is the web and Groupon is real life, and since Real Life > The Web, hence Groupon > Google.

By actual revenue? Google is AdWords.

handwaving and hyberbole? Google has a ton of real life assets. Google Voice is a game changer, as is Android. I don't see how suddenly, based on an inflated valuation, Groupon is suddenly bigger than Google. The proof is in the pudding...time will tell.

There's someone making money off of Android, but it's hardware makers and the cell networks, not Google. What's Android's strategic relevance? More web advertising. Google Voice? Value-add for Android, maybe, but how does it add to their revenue?

I don't think Groupon will necessarily end up bigger than Google, but they may end up fairly comparable. The point is, Groupon is a fairly young startup with some growth left in it and Google is a mature, publicly-traded company. As a business (rather than as a social force or a technical harbinger), Google rounds down to web advertising. To beat Google as a business, you have to beat Google's web advertising. Groupon can do that.

To beat anybody you need to became more valuable in the everyday activities. Care to explain how Groupon can matter in the online or offline life for an average person?

There are dozens of businesses more successful than Google which don't matter in the online or offline life for an average person.

No, Google is an advertising company, pure and simple. Virtually all of their products are a means to aggregate an audience that they can sell to advertisers. Search is just another way that they do this.

Groupon could definitely end up being bigger than Google.

If there was ever a sign of a bubble, it's this comment.

Some local coupon startup thingy bigger than Google? u-huh.

People have been saying 'local is gonna be big' for years. I don't see why. Why do they think more money will be spent locally than people already spend other places?

Yeah, cause everyone knew Google was going to be worth 200 billion or whatever after they were 18 months in.

And the amount people spend on local commerce absolutely dwarfs all online spending, let alone online advertising.

2001: Some web search thingy bigger than all the auto and media companies in the US? u-huh.

I don't know the accuracy of this but a documentary I watched last night about Google claims that 95% of their revenue comes from AdWords.

I know that 99.5% comes from adwords and other advertising holdings (like double click and remarketing)

Not buying it.

I don't spend much money locally. I spend it online.

Really? How do you eat? Do you ever go anywhere besides home and work?

I suspect your spending habits are fairly unusual.

I buy groceries at the same store each week, which has its own loyalty/voucher scheme, as is the norm here at least (UK).

Yeah I shop for various things in town, but I can't be bothered with vouchers for them.

I guess if you're a very promiscuous restaurant goer who lives in a city, then this could be useful for you, but it's hardly in the same ballpark as Google.

I respect Groupon. They've built a good company predicated on a good business model in record time. They properly deserve all the fortune they reap.

That said, I don't understand why they are seen to be a technology company. They are basically a massive sales organization. I'm sure they use technology to tie together their sales automation, but I doubt it's anything more significant than any other IT installation at any other medium-sized sales-oriented company.

Perhaps I'm missing something. Why is Groupon hailed as a technological marvel?

So the tech press has something to write about.

andrew mason said when he moved from concentrating on the point, he used wordpress as the first groupon site

It was a thepoint widget showing in a Wordpress blog. It did use all of the technology behind thepoint but used Wordpress as presentation.

It's about as techy as Amazon was after two years. Amazon is actually a much better comparison for Groupon than any of the other tech companies. Non-technical business, lots of investment in non-technical assets (warehouses vs writers/sales/customer service), etc.

No one has said that Groupon is a technical marvel, but there are the usual challenges involved in high traffic website as well as a lot of development on new initiatives, internationalization, etc. Groupon is making big investments in its technology platform this year. Look for some news about it in January.

You are unstoppable in these Groupon threads. Ask Mason and co. for a raise!

How defensible is Groupon's position? I buy wine online, and I'm happy to sign-up for multiple email wine offers. My Dad would sign-up for multiple Groupons if he observed any evidence of value from copycat competitors. People here have compared Groupon to Facebook, but I don't think the network effects are nearly as strong for Groupon. I don't doubt the first mover advantage, but I don't think it's as strong as some would claim. We should also note that Facebook was not the first social networking site out there.

Edit: With this last sentence, I made a poor attempt to imply that, even with incredibly strong network effects, Friendster and MySpace were displaced even after many thought they had attained critical mass.

The network effects aren't a defense. The main defensible advantage is the customer brand. That's what the money is for - making sure it beats competitors to scale in every city in every country in the world.

I get that Groupon wants to be a strong brand, and it is probably rational to grow big quickly before other competitors establish themselves. However, I don't see how its valuation is defensible given how relatively defenseless it is against competition. It enjoys much weaker network effects than Facebook, and consumers' cost of using multiple services is much lower than, say, using both Google and Bing for every search. Also, how will they maintain high margins when competitors will likely offer up their services to businesses for a fraction of the margin?

The reason the brand matters is that merchants will only use a competitor if it can drive a meaningful number of customers. As long as Groupon is synonymous with daily deals for both merchants and consumers, it will be difficult for any large scale competitor to emerge.

This is Bubblicious.

I agree; I also thought the Google 6bn offer was insane. I personally am not a fan of groupon (over valued).

[Groupon employee speaking]

It might seem so based on publicly available numbers. The publicly available numbers are outdated.

We integrated coupons into FaceCash just last week. I wonder how much our valuation just went up?

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