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Groupon Insiders Take $345 Million Off The Table In Latest Funding Round
- mikek 16y agoThe most interesting part of this story to me is that Jason Fried is on the board of Groupon.
- hubb 16y agoand if he wasn't already, he's now stinking rich
- Timothee 16y agoI discovered that yesterday. It's been over a year (announcement: http://www.groupon.com/blog/cities/jason-fried-joins-the-groupon-board-of-directors/ http://www.groupon.com/blog/cities/jason-fried-joins-the-gro...) and it wasn't a secret, but I was surprised that I hadn't heard about it when it happened. It does seem to clash with what 37signals discusses all the time regarding VC funding. I know that their main point is to fight the default mindset of going first to investors to fund you discovering what to really build, but nevertheless, a huge funding round whose main objective is to have some insiders cash out doesn't fit Jason Fried's perceived philosophy. (granted, DHH might be the more vocal of the two about it)
- lionheart 16y agoIt might clash with his philosophy buy really, in Groupon's position, what else can you do? In my opinion, this is a perfect example of what's currently very broken with the VC/funding model. Groupon is wildly successful, wildly profitable, and yet it's investor can't get paid anything without the whole company having to do this weird funding rigamarole. In the old days they would have just gone public and everybody would be happy. But with the latest regulations nobody wants to do that anymore. And they don't want to sell their company, for good reason. So they're stuck. What there really needs to be is some accepted, pre-defined method for investors to profit from a successful company's cash receipts. That would simplify this whole process, but I don't know how feasible that is.
- far33d 16y agoIf they were to payout investors with their cash receipts, they would have LESS cash to actually reinvest and grow the business. For Groupon, given the amount of competition and the local focus of the business, this would hurt their competitive position significantly against any competitor who decided to reinvest all their cash and raise more money.
- jerf 16y agoAnd if all the businesses work that way, why ever invest? Owning 10% of a company that pays no dividends and can't be sold is worthless unless you can find a sucker. You gotta have some solution where investors have something of some actual value at some point or you're going to see investment go away once they all decide there's no upside.
- far33d 16y agoNo business grows forever - mature businesses should always pay dividends back to their shareholders, public or private.
- jerf 16y agoTrue, certainly, but you can't expect people to invest and wait until the business is "mature" to collect anything in general. A business may take 10 years to mature or more, and it doesn't take much of a discount rate on your money 10 years from now to make the investment very unattractive under any realistic risk model.
- dominostars 16y agoWhat regulations are keeping companies from going public? I ask out of ignorance.
- jonknee 16y agoSOX http://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act http://en.wikipedia.org/wiki/Sarbanes%E2%80%93Oxley_Act It's not keeping companies from going public as much as being a big enough pain and expense to make methods like Groupon's more desirable.
- jorkos 16y ago37signals took money off the table w/ money from Bezos....exact same play
- Timothee 16y agoI discovered that yesterday. It's been over a year (announcement: http://www.groupon.com/blog/cities/jason-fried-joins-the-groupon-board-of-directors/ http://www.groupon.com/blog/cities/jason-fried-joins-the-gro...) and it wasn't a secret, but I was surprised that I hadn't heard about it when it happened. It does seem to clash with what 37signals discusses all the time regarding VC funding. I know that their main point is to fight the default mindset of going first to investors to fund you discovering what to really build, but nevertheless, a huge funding round whose main objective is to have some insiders cash out doesn't fit Jason Fried's perceived philosophy. (granted, DHH might be the more vocal of the two about it)
- deleted 16y ago[deleted]
- jasonfried 16y agoThat's the least interesting part of the story.
- achompas 16y agoAgreed. We can sit here and think about your personal investing decisions, or think about how Groupon will use this new funding to expand their business. The latter is relevant to aspiring entrepreneurs.
- faramarz 16y agoI had to pinch and remind myself that very few Internet startups see money like that thrown around, but at the same time, it goes to show how rewarding success can be in this industry. This is exciting!
- sadiq 16y ago"Somebody also pocketed a $7.5 million “finder’s fee” for helping to put the deal together." That's interesting and a lot of money. Is it common?
- far33d 16y agoIf the "finder" is an investment banker, this seems very low.
- kadavy 16y agoI've signed a finder's fee agreement before. All I would have had to do is send an email intro to someone who eventually invested. I believe it was for 10 or 15% of what would have been raised.
- smanek 16y agoAs a rule of thumb, investment banks will charge about 7% of the value of a stock issue for an IPO. So, for comparison a ~$1B IPO (which this round was comparable too) would have earned a bank about $70M in fees. By that metric, only paying $7M in fees seems cheap. Even assuming the lawyers/diligence/audits/etc cost another $10M (and I suspect that's probably way too high), Groupon is still getting off pretty cheap.
- c2 16y agoYou know investors have confidence in a company when they finance what basically amounts to a executive cash out round.
- ceejayoz 16y agoInvestors had plenty of confidence in mortgage-backed securities, too.
- achompas 16y agoInteresting note in this article: $345 of the $500 million in funding will go to "executive officers, directors, or promoters." This somewhat contradicts what I read yesterday from P Morgan Brown (via The Atlantic Tech) [1]: "What Groupon is doing is something that no other tech company has done in recent memory--made a real run at securing a big chunk of the SMB market...[T]o put that organization in place is going to take a ton of cash." Groupon might be after SMBs, but what kind of sales team can they purchase with $155 million? (Serious question, not rhetorical). [1] http://www.theatlantic.com/technology/archive/2010/12/what-groupons-doing-that-google-couldnt/68648/ http://www.theatlantic.com/technology/archive/2010/12/what-g...
- jonknee 16y agoIt's $950m, not $500m. So they have $600m left to go hire a commissioned sales force.
- achompas 16y agoYeah, I slipped up numbers since TC says they've raised $500m so far. I'm very interested in how they're going to spend the other $600m.
- aaronblohowiak 16y agoYet another case where there is a liquidity event for the capitalists but not for the programmers. The promise of "generous equity" as a part of the compensation package remains a raw deal for non-founders.
- mmt 16y ago"generous equity" as a part of the compensation package I see this in job postings occasionally, and it always strikes me as the Lady Protesting Too Much. Just tell me an order of magnitude of percentage ownership, and I'll be the judge of whether or not it's generous. I have yet to experience anything but the latter, which isn't surprising if the entire employee option pool is 10% by itself and the founders take no dilution from new hires.
- johnrob 16y agoThis is the 2010 version of an IPO.
- dy 16y agoThanks to government regulation, it's become so onerous to do an IPO to the public that the little man is effectively left out of these opportunities. My guess is it won't be long until secondmarket comes under SEC regulation and catering to accredited investors won't be a shield anymore.