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Where Did Groupon’s Billion Dollars (Series G) Go?
- run4yourlives 15y agoLegal Pyramid Scheme, nothing more. 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.
- bcrescimanno 15y agoMore accurately; it's a ponzi scheme, not so much a pyramid scheme. That said, I agree with exactly what you wrote in opinion around it.
- run4yourlives 15y agoGood point, you're of course correct. Same result to the people on the bottom/outside though.
- freshfunk 15y agoI know nothing special about Groupon but this does look really bad. 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.
- michaelchisari 15y agoMaybe they'll put their personal money in it. Maybe the company managing their retirement account will buy it. What makes it even more troublesome is how many times we've been through this in the past 10-15 years.
- deleted 15y ago[deleted]
- narrator 15y agoLooks like investors got what they were looking for: http://www.theonion.com/articles/recessionplagued-nation-demands-new-bubble-to-inve,2486/ http://www.theonion.com/articles/recessionplagued-nation-dem...
- jcmrgo 15y agoAbout Groupon in particular: "Groupon's first quarter 2011 revenues reached $645 million." Read more: http://www.businessinsider.com/groupon-files-for-ipo-2011-6?op=1#ixzz1OAGOMXaN http://www.businessinsider.com/groupon-files-for-ipo-2011-6?... About your comment on the way founders 'produce' with the only purpose of raising capital instead of building a lasting product, I agree.
- deleted 15y ago[deleted]
- DanielRibeiro 15y agoGuess now it is clearer why Groupon wanted $1B in breakup fees from Google: http://news.ycombinator.com/item?id=1987181 http://news.ycombinator.com/item?id=1987181
- ig1 15y agoGroupon is on target for revenues in the $4 billion region this year (it was $2.6 billion last year). 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.
- jpastika 15y agoRevenue can be a very misleading measurement of success. I agree that $4 billion in revenue is very impressive, especially considering the rate of Groupon's revenue growth, but overall losses and no profit plans any time soon, leaves me disappointed. What impresses me more is a company generating $10 million in revenue with $7 million in profit. Will Groupon eventually make money...maybe, but I'm not sure it will happen any time soon nor with their current business model. Groupon has two very valuable assets that I believe will eventually be used as the reasoning for an acquisition by Amazon or Google: 1) a large and growing list of consumers and 2) their buying habits.
- edw 15y agoYou should invest in profit machines, not revenue machines.
- run4yourlives 15y agoGroupon's expenses are larger than their revenue, and have been since inception. This is a Bad Thing. 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.
- pbreit 15y agoIt is completely insane how much investor money went to founders and not the company in both the G round and the previous round. How could investors agree to that? Kudos to Mason & Co. for getting out while the going was good.
- far33d 15y agoWow. Eric and Elizabeth Lefkosky turned a $1m angel investment (according to crunchbase) into $380m cash in 4 years.
- maxdemarzi 15y agoI remember reading a pretty nasty article about Eric Lefkosky. "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-innerworkings.html http://notablecalls1.blogspot.com/2007/01/inner-workings-of-...
- alanfalcon 15y agoThat huckster could have been seen as providing a public service. Or, well, earning a fortune with the public service as a side benefit. In other words, seems like this comparison is giving the huckster a bad rap!
- clobber 15y agoYes. Stay clear of Lefkofsky and Lightbank http://lightbank.com/ http://lightbank.com/
- MatthewB 15y agoThat's insane - a few people got very rich. Seems like they should have invested that money back into the company if you ask me.
- jamesaguilar 15y agoDepends on your goal. If I own half of a maybe-fad company that is currently worth $1 billion, you can bet I am reducing my exposure to that and converting a lot of my ownership to other assets if I have the chance.
- theklub 15y agoI remember when hacker news had useful information. Its all gossip now.
- ChuckMcM 15y agoExcept this isn't 'gossip' this is an analysis of the S-1 filing. And a commentary on the sad state of hucksterism in the technology community. I like GroupOn's concept but I share the sentiment that some of the folks in the inner circle are taking advantage.
- InfinityX0 15y agoSomewhat counter to the original comment in this thread's tone, this was an interesting piece in that the OP revealed little to me, but the comment thread was the most informative thing I've read here in weeks. Incredibly valuable.
- fingerprinter 15y agoWhen people saw Groupon, Twitter and Facebook taking those huge rounds did everyone think they were going to invest back in the business? I'm pretty sure most thought that founders and early investors were taking money off the table. 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.
- omfut 15y agoIts 7000+ employees not 3000+.
- deleted 15y ago[deleted]
- marcamillion 15y agoWhen they IPO, you'll see 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.
- dreamdu5t 15y agoNo.. when they turn a profit we'll see.
- marcamillion 15y agoNope...I was responding to the OP's statement about not understanding how they could have turned down $6B from Google. 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.
- marcamillion 15y agoKinda insane how much Mason seems to being shafted on this one. He got 10M from the 950M raised. That just seems wrong. Lefkowsky & his wife got at least $310M. Wow....talk about being shafted.
- fido 15y agoHe didn't get shafted; he still owns a very significant portion of the business. He simply didn't take as much out with this round as others may have. He will have his payday, and it will make these others seem like chump change...
- rokhayakebe 15y agoHow much does Mason own?
- shashashasha 15y agoAccording to this NYTimes article, about 7.7% of the Class A shares and 40% of the Class B shares: http://dealbook.nytimes.com/2011/06/02/groupon-c-e-o-to-make-575-in-2011/ http://dealbook.nytimes.com/2011/06/02/groupon-c-e-o-to-make...
- ojbyrne 15y agoInteresting to see Jason Fried (presumably the one from 37 signals) in the stock sale list.
- antidaily 15y agoWas on the board, now serves as an advisor.
- dreamdu5t 15y agoWe really need to abandon this "adviser" crap. It means absolutely nothing, and 90% of advisers don't do any advising.
- sahillavingia 15y agoYou need better advisors.
- intended 15y agoHonestly, having this post voted down into oblivion does nothing for newbies who may come here. While his tone may not be the best, a simple explanation or example/link to why you have a reason to disagree would be helpful. This would be doubly productive since a response to his comment went "you need better advisors", which is not the rebuttal we would like to see on HN.
- deleted 15y ago[deleted]
- staunch 15y agoYes, it is the one from 37 signals. He was on their board now an advisor. 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.
- jdp23 15y agoOne of the differences between now and the last dot com bubble is that these days, founders and early stage investors get their big paybacks before the IPO so have even more incentive to pump up unsustainable business models.
- 9999 15y agoIsn't this a fairly common practice? Admittedly, Groupon's enormous employee base means they're going to burn through the remaining funds faster than an ordinary startup. Aside from that, this doesn't seem all that outrageous, at least not outrageous enough for the overall level of indignation in the comments here (accusations of it being a pyramid scheme, etc.).
- _delirium 15y agoI don't think it's that common for equity to be massively cashed out (to the tune of nearly $1b) before the IPO. Shows a pretty strong lack of confidence in not only the long-term viability of the business, but even its medium-term viability, or else the principals would be content with the normal practice of slowly cashing out with steady monthly post-IPO stock sales. As far as I can find, Google principals didn't significantly cash out before their IPO.
- jwhite 15y agoThat's certainly why I'm surprised about it. Don't transactions of this size have to be okayed by the board of directors? And by series G shouldn't the original founders and early investors be diluted out of board control? Perhaps Groupon is special, I'm not familiar with these things.
- CyberFonic 15y agoAgreed it looks totally bat shit insane! 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.
- kanamekun 15y agoThere is nothing wrong with taking money off of the table. In fact, if you want to strike it big... it's important to make sure that your management team is financially secure: http://learntoduck.com/startups/it-all-changes-when-the-founder-drives-a-porsche http://learntoduck.com/startups/it-all-changes-when-the-foun... 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-andrew-mason-sold-stock-to-dst-to-solve-the-money-problem/ http://blogs.forbes.com/velocity/2010/04/19/groupon-ceo-andr...
- ariels 15y agoMakes me sad that insiders cashed out instead of focusing on building the business.
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- revorad 15y agoContrast this with what a bootstrapped business does with all its money: 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-proud-sparkfun-/ http://37signals.com/svn/posts/2896-bootstrapped-profitable-...
- hessenwolf 15y ago"Co-founders Eric P. Lefkofsky, Bradley Keywell and Andrew Mason will control the company even if their ownership stake in Groupon drops below 50%" Why the hell would I buy into the company and still not own it?
- stewiecat 15y agoGoogle has the same thing. Larry, Sergey, Eric all have shares that carry 10x the votes of regular Class A shares so they can still exercise control if their holdings fall below 50%.