LivingSocial's response is extremely damning of "PrivCo".
UPDATE: Just got off the phone with Hamadeh
[PrivCo CEO], who is standing by his original report.
He says O'Shaughnessy is misleading his own employees,
and that classifying the round as "equity" is a
technicality given all of the debt-like provisions
PrivCo continues to believe were attached. He also says
that PrivCo spoke with a LivingSocial spokesman prior
to publishing, and sent him a draft of the report with
a request for any needed corrections. When nothing came
back four hours later, PrivCo published.
With respect to the "4 hours later" I would like to know what the standard is in the news business before "going to press" with a story.
I'm not entirely certain that a news organization would wait more than 4 hours if they feel they are publishing information or trying to scoop someone. Each news organization is different of course and has different standards. I don't think this is as unusual as it sounds (I could be wrong of course).
I will ask a writer(customer we have) at the NY Times what the standard is for this (I'll be lucky if they reply to me within 4 hours of course).
The question I posed was:
"When a news organization has what they think is a "scoop" and reaches out to confirm info with a company what is the normal time to wait for a reply before running with the story? I understand each organization has different standards and each situation is different. What are the guidelines or standards that you have seen after a PR depart at a company has been contacted for comment?"
Here was the answer from someone at the NYT (for at least 10 years) that has done front cover pieces and covered startups (among other things):
"It really depends on the topic, the competition and who's being asked to comment. If I called someone like you (business owner) and you didn't at least acknowledge my inquiry within a day -- perhaps asking for more time -- and it was a big scoop, I might not wait much longer. But if I had big news about a government agency or large multinational corporation with many layers, then some topics would merit more time for a response. There are a lot of variables though ... if the CEO of a large corporation got busted for drunk driving and killing someone, that's more time-sensitive than asking for comment about a long-term investigation into fraudulent practices at the company. And as you said, different media outlets have different standards."
PrivCo saying they "...sent him a draft of the report with a request for any needed corrections. When nothing came back four hours later.." they assumed everything is true is a weak though.
I guess I will send LS an email saying I am the new CEO, please email back if this needs to be corrected...
...I will let you guys know if they don't respond, in which case, D.C. here I come!
I'm sure your out-of-hours deadlines were totally non-negotiable, and that holding off on the release til the next morning were absolutely essential, right?
There is nothing livingsocial can do to revert its current trajectory. It's not about the company, but the very core of its business model does not work, not one but dozen of similar companies failed early, are livingsocial and groupon trying to run some sort of ponzi scheme on desperate investors and employees?
What groupon, livingsocial, et al assumed was that this was an endless market and would work for every type of business. This is clearly not the case. Whether these particular companies can get to the right size and find the right market remains to be seen - but I don't believe this is a "ponzi scheme" at all.
I don't doubt for a second that LivingSocial is experimenting with it's models, innovating and trying new stuff. It might not work out, but the investor clearly has enough confidence that it will to invest more cash.
But really, this is just a completely arguable point of view, sorry if it came out a bit despotic.
According to the PrivCo article, they got first rights on liquidation. So they'd be either getting a huge part of a miracle turnaround, or most of their money back when the company was sold off in bankruptcy.
Of course that article appears to be completely wrong, so I guess it doesn't actually matter. But there's your motivation for investing in a dying business.
"We are a company that does over half a billion in revenue. If we stay diligent, we hope to turn the corner to become profitable soon."
IANAL, but this doesn't seem like libel per se, so damages and malice would both need to be proven by the plaintiff.
(IANAL, and I am even less well-versed about tortious interference than I am about libel law.)
The sad truth is that this down round will hurt the employees more than they know, or are being told. Down rounds aren't made under the same terms as up rounds where the company has the advantage. When the investor has the advantage the terms will weigh heavily in favor of the investor protecting their cash, so what looks like equity today may not be in the future.
"That same source insists LivingSocial was not days or weeks away from a bankruptcy filing, adding that it had around $28 million in cash at its February low point and was on plan to steadily increase that number even without the new financing. Had that figure not increased, and had no new investment been forthcoming, it still could have survived for several more months."
Regardless of Privco, not exactly encouraging for employees and prospective merchants. I also wonder how much of the $110 million will actually be used for growing the business versus covering current liabilities, such as those due to existing merchants.
Their operating expenses are about $1.4 Billion/year (Revenue + Operating loss = about $1.4 Billion they spend a year). That's $120 Million a month. $4 million a day. THEY WERE DOWN TO JUST 7 DAYS OF CASH! How is that NOT the very definition of a "distressed financing" situation? Correct the record Primack and admit when you're wrong - there's no shame in that - that you were a bit hasty at first, but yes they were down to a dangerously low level of cash and regardless of the financing terms or structured as technically debt or technically equity, that yes this was a distressed financing situation.
Mind you, I don't trust anyone's word on this.