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The checkered past of Groupon's chairman
- nh 15y agoHere's a 2 minute video about Lefkofsky by Bloomberg http://www.youtube.com/watch?v=D_UYtYAChi8 http://www.youtube.com/watch?v=D_UYtYAChi8
- Luyt 15y agoHeh, I wish I had this prowess to make millions of dollars ;-)
- suking 15y agoI don't know if this info is limited to tech communities or what... Is the general consensus that this IPO seems very scammy outside of the tech world?
- bcrescimanno 15y agoI think it's mostly the general consensus--period. This has boiler-room style "pump and dump" written all over it; yet the big investment banks have been getting away with running IPOs this way for years. Groupon just happens to be the latest example.
- suking 15y agoI just keep thinking how many terrible articles can be written about them before the IPO is scrapped. Their numbers are a joke.
- kennystone 15y agoThey can't scrap it. They are bleeding cash.
- ChuckMcM 15y agoActually they can, and yes they are bleeding cash and yes they are 'upside down' in the parlance, but if they lower the offering price and still can't get it fully subscribed they are stuck. They can go back to their investors for a bridge loan, or issue warrants, or try another private (probably down) round. Two very interesting things have come out of Groupon's history so far, the first is that they turned down a $6B buyout (which seemed amazing to me at the time) and then they did a fund raise where most of the stock was insiders selling. That particular combination makes me wonder if the buyout was rejected because the way money would have been shared around was stipulated by previous term agreements, and some of the investors didn't want that, so they did the series D or what ever it was which allowed them to funnel money to specific investors, so that now if they take a hair cut on valuation those investors are 'protected.' So the fact that they are bleeding cash will force some sort of financial transaction to occur (buyout, bridge loan, chapter 11 bankruptcy), if they are having a hard time getting the offering fully subscribed they may be shopping the company around, and if they are doing that they are in a much weaker position than they were before.
- ookblah 15y agoDo you think that us living in this time period would help mitigate that? I mean back in 2000 I was too young to understand all that, but was the bubble partly due to misinformation by of the public? I feel like with all these stories about the IPO being cast in a negative light, and how connected we are now w/ information, the average person would be much more careful. Hm.
- ssmoot 15y agoI remember the dot-coms. I wouldn't say I was all that savvy then (or now), but my take is it feels very similar now. It really didn't seem like there was a lot of out-right deception then, or even misinformation. Companies will always say they're great. There's enough information out there to inspire some skepticism if you're open to it. I'm no professional at this, but my uneducated observation is that, then and now, there's a lot of money to be made, and people are willing to risk riding the wave as long as they think they can get out before the crash. It's just simple greed. Nobody really believes these companies are actually worth what they're being pitched at; but "if I can quickly double or quadruple my investment, then get out clean, why should I miss out? After all, I'm smarter than everyone else..."
- rickmode 15y agoYou've described the very definition of the "greater fool theory" [1]. This is investing based on momentum rather than value (such as the price to earnings ratio). The intent is to sell to another "fool" after mading a profit. Of course it all comes tumbling down when the market runs out of fools [2]. [1] http://en.wikipedia.org/wiki/Greater_fool_theory http://en.wikipedia.org/wiki/Greater_fool_theory [2] http://en.wikipedia.org/wiki/Tulip_mania http://en.wikipedia.org/wiki/Tulip_mania
- chopsueyar 15y agoMore to the point... http://en.wikipedia.org/wiki/Exit_strategy http://en.wikipedia.org/wiki/Exit_strategy
- mixmax 15y ago
- eli 15y agoI think every story I heard or read on the IPO at least mentioned the fact that they seem to be losing a fair bit of money.
- justin_vanw 15y agoLefkofsky's only talent seems to be pumping valuation and exiting on top.
- saeidm 15y agoMakes you wonder why he didn't exit when he had a chance at $6 billion. I doubt groupon will ever see that type of valuation again considering how terrible their coupons have become and how natural competitors in the space like local papers and yelp are beginning to gain traction.
- WinstonW 15y agonh posted a video below which states that based on a $25B valuation, Lefkofsky will grab $5.3B, as he owns 22 percent of Groupon. That's a hell of a lot more than he'd have made in the Google deal. Courtesy of nh: http://www.youtube.com/watch?v=D_UYtYAChi8 http://www.youtube.com/watch?v=D_UYtYAChi8
- ubercore 15y agoIsn't it only potentially a hell of a lot more, if Groupon stock holds its value, as opposed to cash/GOOG?
- nostrademons 15y agoGroupon stock only has to hold its value long enough for his lockout (usually 6 months) to end. It's usually not hard to do that - when things come crashing down, it's usually a few years in the future, not months.
- CoffeeDregs 15y agoNot really. Unloading 20% of a company without telling anyone is both hard and, I think, illegal (as an exec). This is one of the reasons Bill Gates' stock sales are so consistent is to keep the market from freaking out when he sells stock. (Ohmigod, Bill sold stock! Oh wait, he's done that every month for 10 years... nevermind.) Lefkofsky might be able to hedge against the decline of the stock, but hedging 20% of a big company (especially because it'd be difficult to build a portfolio which replicated Groupon's situation and risks) is a pretty tall order. All that said, I tend to agree with your sentiment...
- breck 15y agoThis article digs up some interesting events from the past, but it has a negative spin so definitely also read Lefkofsky's own words: http://www.lefkofsky.com/blog/when-you-dont-know-what-to-say http://www.lefkofsky.com/blog/when-you-dont-know-what-to-say He seems both honest and it's evident he's determined and learns a lot from experience. He's clearly the type of entrepreneur that VCs always ask for: the "go big or go home" type. Seems like his early investors didn't grasp that. I wonder if he'll distribute any of his Groupon proceeds to some of the investors who backed him early. The ones who didn't turn on him when things went south, anyway.
- dsplittgerber 15y agoThere is a clear difference between "go big or go home" and "pump it & dump it". I am astonished people don't seem to see the difference.
- ChuckMcM 15y agoThere is a saying that when you scheme to make yourself and the company successful its called 'leadership' and when you scheme to make only yourself successful its called 'politics.' (some cynics add that if you make the company successful but not yourself its called 'stupidity' :-) The exhortation 'go big or go home' is clearly a challenge to 'win' at all costs. How people internalize that challenge reflects on their character and their moral compass. Its all about what someone considers and 'acceptable cost' at that point.
- breck 15y agoSure, Groupon could go bust. Me, I have no idea what will happen. On the one hand, Groupon resembles a lot of fads. On the other hand, I've admired their execution and innovation over the years. I can't predict whether they will succeed better than a coin flip. If you can, put some money on it. :)
- imjustatechguy 15y agoI think that people are aware of the distinction, but they feel that Groupon, while it might have been a "go big" hope, it is distinctly leaning towards the "go home" while at the same time it is trying to IPO. This means that some now interpret it as a "pump it & dump it" scheme, especially given that the major founders are selling stock by the hundreds of millions of dollars.
- antidaily 15y agoSidenote: Anyone else catch (Groupon director) Brad Keywell's talk at MidVentures Chicago last year? All that Ayn Rand stuff?? Bizarre.
- mmaunder 15y agohttp://www.ustream.tv/recorded/9876278 http://www.ustream.tv/recorded/9876278 What's bizarre?
- Jun8 15y agoI was there. His talk was OK (best time to plant a tree is 20 years ago, etc.) if a little too buttoned up. Must have filtered out the Rand part. Steve Hoffman's talk was much better, I think.
- Create 15y agothe Ayn Rand stuff doesn't work ... it didn't, not even for her. http://www.youtube.com/watch?v=Uz2j3BhL47c http://www.youtube.com/watch?v=Uz2j3BhL47c
- Tycho 15y agoThat is one of the most ridiculous and tenuous pieces of television I've ever seen from the BBC. It's almost like Curtis plays random association games then tries to impose a historical narrative on it.
- Create 15y agodo you think Ann was happy? are others whom have to live with stuff she was used to justify? btw Curtis is aware of random association games and their abuse (see Century of the Self). He is also aware of history (see blog entry about Eden/China, Libya, Iraq, Kosovo etc. -- he always puts it in context)
- Tycho 15y agoIf Curtis' latest documentary series was a courtcase, the defense would be going blue in the face shouting 'objection!' after virtually every line and the judge would likely just make a sign saying 'sustained' to hold up. Almost every assertion/connection he makes or insinuates is logically untenable. Consider the whole leap from 'some' Silicon Valley entrepreneurs following Rand, to the NY/London financial industry putting too much faith in computers. Or the supposed direness westernisation has brought about in south-east Asia - focussing on a single crisis and ignoring the broader picture. Or statements he makes about things so long passed that they somehow shouldn't need evidence, eg. the great depression 'was caused by greed.' Basically he picks a bunch of ideas or voices, arbitrarily decides they had utmost influence on history, giving no evidence for this, then connects them to cherry-picked historical events, omitting any events that would contradict the narrative he wants to present, and also any counterpoints within the ideologies he's 'debunking.' If anyone seriously finishes watching those shows and takes it all at face value, they have some serious epistemological issues. Was Rand happy? Think how ridiculous this is: all the stuff she accomplished in her life time, and the documentary focuses on one spell of unhappiness stemming from a personal betrayal, to paint her as a 'failed invidividual.' Think of all the difficulties other philosophers/writers ran into - yet we let their ideas stand on their own merit. Of course Rand was not happy every single day, and there's nothing about her philosophy that suggests she ought to have been, but she was (rightly) satisfied with her life.
- rokhayakebe 15y agoI wish people stopped talking dirt about these guys and their IPO. Investors aren't being forced to buy the stock, consumers aren't being forced to buy groupons and merchants aren't certainly being forced to participate in their program. While Lefkofsky is selling his stock at will, you should note that the CEO is holding on to most of his portion of the company. Everybody and their cousin worries about their expenses, and that is totally understandable, but let us not forget how many acquisitions they have made in the past. If most of the money they have raised went into founders' pockets, then most of the income they have made went into buying other sizeable companies and paying some 7000 employees. There are 15M small businesses in the US. Groupon made nearly $3B last year servicing only less than half a percent of those. For better or for worse, Groupon could be bigger than Google and turn a solid profit.
- imjustatechguy 15y agoI think that investors should be informed about Groupon and its founders. It is especially important if there are issues with Groupon and its founders. I was actually quite impressed with Groupon initially until I saw its numbers and that its major stockholders were cashing out hundreds of millions of dollars in stock pre-IPO. That raised with me huge alarm bells and it changed my opinion drastically. My extreme leariness of Groupon is based on facts that I've learned as I used to be a fan, although a relatively uninformed one.
- truthout 15y agoEvery comment this account has made had been related to groupon. I think the tech giants are out bastetdize its IPO. The company is a top line revenue behemoth, unlike LinkedIn. Seems to have a lot of potential if they increase profit margins. A lot.
- imjustatechguy 15y agoIt appears that you are strongly implying that I am part of a conspiracy. Can you outline in more detail this conspiracy that you believe I am involved in?
- ashbrahma 15y agoArticle on Techcrunch today about a retailers view point on Groupon: http://techcrunch.com/2011/06/09/groupon-single-worst-decision/ http://techcrunch.com/2011/06/09/groupon-single-worst-decisi...
- louislouis 15y agoTruthed. My friends company struck a deal with groupon in a strategic attempt to get more exposure, even though they sold their products at a loss. Yes their website got a large traffic spike on the day it hit groupons front page, but no, none of the traffic stuck. Just FYI.
- 9999 15y agoThere have been quite a few of these articles now. This one was both informative and somewhat damning: http://venturelevel.com/post/4798285366/why-groupon-sucks-for-merchants-and-livingsocial http://venturelevel.com/post/4798285366/why-groupon-sucks-fo... Now that the social buying model is better understood, I feel like merchants are in a much better position to determine whether or not a Groupon deal actually makes sense for them.
- louislouis 15y agoIt's a joke that stocks can be diluted afterwards by insider offerings. Thats almost a license to print money. Surely theres a law for this scam?
- cellis 15y agoYes, it's called The Law of Supply and Demand. Once they increase the supply of the stocks too much, the demand will go down and they'll have to go back to having 3 summer homes instead of 4, and 2 private jets instead of 3.
- louislouis 15y agoYes but shouldn't the demand for stock be translated into the stock price going up? And not a backdoor to dilute the cake?
- lurker19 15y agoThing is, share dilution is not much different from giving an employee or vendor a huge pile of money in exchange for labor that turns out not to generate much revenue. It is bad for business (and will be reflected in a share value drop), but how can you prove it is fraud?
- louislouis 15y agoHmmm... It's rather convincing when you put it that way.
- dr_ 15y agoFine, but before the negativity surrounding Groupon, he's considered someone with an "impressive entrepreneurial track record" http://www.nytimes.com/2010/11/18/business/18sbiz.html http://www.nytimes.com/2010/11/18/business/18sbiz.html
- imjustatechguy 15y agoYou mean before people started to look into him more closely? I also was very impressed with Groupon before they released their numbers and the amount of shares sold by insiders prior to IPO. More information led me to change my mind. My hope is that Groupon files an new disclosure in a couple months that has better numbers. That is the real solution that everyone is waiting on now. Our minds can be changed again, just like they were changed with the first IPO filing. From my perspective, this would be a very mature and robust solution to the problem at hand.
- MediaBehavior 15y agoHow much skepticism will need to be raised before investors are deterred from funding "a possible bonanza"? I also wonder how much Groupon is riding high based on the reasoning, "Well, if _Google_ thought highly enough of it..." (forgetting that Google was willing to bet on it _on_condition_ that Google had control/oversight of the operation)
- cte 15y agoHere's a piece of the S1 that I haven't yet seen cited: "To demonstrate the economics of our business model, we have compared the revenue and gross profit generated from the North American subscribers we acquired in the second quarter of 2010, which we refer to as our Q2 2010 cohort, to the online marketing expenses incurred to acquire such subscribers. The Q2 2010 cohort is illustrative of trends we have seen among our North American subscriber base. The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated $61.7 million in gross profit from this group of subscribers over four quarters." A typical cohort that returned >3x what it cost? Sounds like a good business to me.
- shareme 15y agoYou are missing some things: 1. Costs to gain subscribers goes up each quarter 2. Costs to retain subscribers goes up each quarter 3. Marketing costs to get deals for subscribers goes up each quarter Costs to retain subscribers is missing..what part of loss is that? Do not know have not finished reviewing the S1.. and other difference compared to Amazon..Amazon founders did not attempt a cash out during the loss years...