Where Did Groupon’s Billion Dollars (Series G) Go?
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The founders and early stage investors build something semi-viable, then spend all their efforts on marketing. Some of helps to grow the product, but most to convince bigger investors to buy them out and assume the risk.
Why on earth would investors do this, you ask? Well, because they know that given the marketing, there will be other investors that will allow them to exit.
Repeat until IPO, then ride the wave until the explosion. Time it right you make a fortune.
Unfortunately, a minimum of effort goes into creating a lasting product with a proper valuation, so the moment that most investors realize that they aren't going to make their money back, ka-boom.
Dot bomb all over again. Groupon is not a billion dollar company.
Same result to the people on the bottom/outside though.
It's akin to finding a greater fool down the road to leave the bag with. Normally that wouldn't bother me too much but given that they're going public the last fool who ends up holding the back may be your average, every day investor.
Maybe they'll put their personal money in it. Maybe the company managing their retirement account will buy it. Either way, it'll be out there in the public for less sophisticated investors to buy.
And, given that they've used such a high percentage of their latter investments to pay out early investors, always always looks bad. It shows low confidence in the company in the long run.
I think it would be wise to stay clear of Groupon.
What makes it even more troublesome is how many times we've been through this in the past 10-15 years.
http://www.theonion.com/articles/recessionplagued-nation-dem...
About your comment on the way founders 'produce' with the only purpose of raising capital instead of building a lasting product, I agree.
That's more than the combined revenue of Facebook, Twitter and Linkedin last year (which were around $2.5 billion).
Groupon is a huge revenue machine, like it or not they are clearly a billion dollar company in an enormous untapped market.
You could make an exception if unprofitably is caused by re-investment into a model that is proven to profitable but requires a certain level of scale.
Groupon isn't doing that however. What they're doing is reinvesting the money into other people's pockets.
Though, the degree to which Groupon did is amazing. I can't believe any investor would have agreed to those terms. In the Groupon case as well, with 3000+ employees (which is, frankly insane), I don't know how anyone looking at the numbers, the terms, the business and the structure would have agreed to invest. Marketing be damned, unless someone blows this up it won't make money.
I'll never understand why they turned down $6B from Google.
With all the frothiness happening now, it actually makes sense - because they are doing the fiduciary responsible thing for their shareholders.
If they IPO and the company is worth $12B - $20B and all their investors get to cash out. As much of a shell game as it is, that would have been a fiscally prudent move by management.
with 3000+ employees (which is, frankly insane)
From the SEC S-1 filing[1]:
We grew from 37 employees as of June 30, 2009 to 7,107 employees as of March 31, 2011.
[1] http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
Nearly every investment agreement has a "how will this money be used?" section, and I can't believe a fund would give hundreds of millions of dollars to a company that was explicitly going to be put it to founders' pockets, unless they too are in on the scheme and are hoping for a quick flip.
"InnerWorkings goes to great lengths to obscure its ownership and control by a chap named Eric P. Lefkofsky who has a history of busting investors after promising to radically transform bricks-and-mortar industries. He seems to identify with Dr. Seuss's huckster: he called his last business Starbelly.com, a venture that rapidly went into bankruptcy and provoked fraud suits by investors alleging that Starbelly's software was never what Lefkofsky promised. "
http://notablecalls1.blogspot.com/2007/01/inner-workings-of-...
In other words, seems like this comparison is giving the huckster a bad rap!
It looks like he already made $557,721 by selling some stock during Series G. I think that left him with 414,690 shares worth at least $6.5 million and probably a multiple of that by the time he can sell them. I could be reading this incorrectly though.
He might end up making more off a dozen board meetings than 10 years of hard work at 37 signals. It's a crazy world.
Taking money and giving money is not the same thing.
Groupon asked me to be on their board of directors. Compensation for that position was paid in options. That's why I have options/stock in Groupon, not because of an investment.
As far as angel investing goes, I have not made any angel investments to date. The only private company I've ever invested in is my own company, 37signals. That's not to say I wouldn't invest in another private company, I just haven't so far.
Andrew Mason was fairly explicit that taking a recent huge round was designed to "permanently solve the money problem":
(from the article linked below)
“For me, the reason to do this was to solve a binary life problem,” he explained.
In life, Andrew says, “You either have enough [money] or you don’t.”
“When people came with a lot of money to buy a very small percentage of Groupon and it was enough to permanently solve the money problem, why would I not want to do that?
“Now I can focus on making Groupon great.”
http://blogs.forbes.com/velocity/2010/04/19/groupon-ceo-andr...
BUT ... other than those who directly benefit, who else would invest in something that might never pay a decent return on investment ???? To me it looks like throwing piles of $100 notes on a bonfire, nice flames, lovely crinkling sound.
After the inventory sold, it was a matter of repeating the process. “You take all the money you make and buy more inventory with it,” Seidle says. “You continue to do this until either you have enough inventory to cover the number of incoming orders or you want to eat. I think it was more than 3 years before I was able to buy a new winter jacket. A growing, bootstrapped business is a cash devouring machine.”
From the Sparkfun founder Nathan Seidle's interview - http://37signals.com/svn/posts/2896-bootstrapped-profitable-...
He got 10M from the 950M raised. That just seems wrong. Lefkowsky & his wife got at least $310M.
Wow....talk about being shafted.
Why the hell would I buy into the company and still not own it?
I like GroupOn's concept but I share the sentiment that some of the folks in the inner circle are taking advantage.