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Comment by smackfu | Hacker News Reader

I guess, but that is how private companies are valued every day. I sell you 5% for $1 million, we are both agreeing that the company is worth $20 million.

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But Groupon is now a public company and what they've done isn't exactly normal (though LinkedIn did something similar...and of course yesterday the follow-on was announced):

Groupon floated a record-low percentage of its total outstanding shares among U.S. Internet companies, helping to stoke demand. Only 4.7 percent of the stock was made available to the public, based on the offering terms. That’s less than in any U.S. Internet company IPO of more $200 million since at least 2000, Bloomberg data show.

http://www.bloomberg.com/news/2011-11-03/groupon-said-to-rai...

It isn't quite common, but many of the internet darlings did this same thing. I don't know why it is news all of a sudden. While GRPN has the smallest float, there were many other companies in the ballpark (P, LNKD, GOOG, etc). A more general rule of thumb for IPO's is 20-25%, but all of these guys had single digit values. It is fairly smart move on their part. They get a higher valuation due to demand and supply, and a long as all of the investors/employees don't flood the market with their shares, the early investors/employees win.

Recall Google: http://en.wikipedia.org/wiki/History_of_Google#Financing_and...

They floated 14m out of 271m total shares, and other stockholders added another 5m or so... so the total amount it IPO'd for was around 7% of the company but GOOG's share was roughly 5%

Eh, ish. If the total supply of shares is 5% of the company, they'll be worth more individually than if the whole company was up for sale. That's just supply and demand at work. If you genuimely think that the company is worth 20 million and can buy 5% of it for 1 million and stop anyone else from doing so, that's a really good deal.

That is also how all public companies are valued. Only a fraction of shares are traded on any particular day, and that is what's used to determine the market cap.

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