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This is one of the best and most damning analyses of Groupon I've seen yet, which is kinda surprising coming from TC but I guess it is a guest post. The bigges

by cletus 15y ago

This is one of the best and most damning analyses of Groupon I've seen yet, which is kinda surprising coming from TC but I guess it is a guest post. The biggest parts of this are the account risk, the needing to grow revenue to pay existing liabilities (which is and should be a huge warning flag for any enterprise) and just how much room there is for someone to do this better. My only fear is that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley.

ChuckFrank 15y ago
Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense. Suggesting that a poorly performing companies weak IPO, or otherwise, will taint other IPOs and prompt regulations makes no sense whatsoever. For the health and vigor of the tech markets, Groupon's IPO should be a spectacular failure based upon the poor business model and weaker financial position.
- cletus 15y ago
  Imagine a worst case scenario where Groupon files for Chapter 11 and defaults on all outstanding debts to merchants, which by that stage could amount to over a billion dollars (IIRC it's currently $280 million). Imagine that because of that lost revenue many small businesses end up collapsing. At the same time it becomes more public knowledge that 2010 funding rounds were to buy out early investors, who made out like bandits, and retail investors, pension funds and so on lose a huge stack of money. Now look at that (admittedly pessimistic) picture and try and tell me there won't at least be calls for "reform".
  - SwellJoe 15y ago
    I think the more dangerous result will be that the scheme continues to "work" for another couple of years, a half dozen competitors come along and run the same basic scheme (with tweaks to make the new businesses "unique"; maybe they go for particular niches currently unserved or whatever), those companies also have explosive IPOs, and then the whole thing comes crashing down in a couple more years when the IPO money runs out. One company with a 280 million dollar bankruptcy (or, more realistically, by the time of the IPO it will be a few billion dollars) isn't going to make a big dent in how the markets work. But, a half dozen such companies in the same boat when the bottom falls out of the market and the fallout for all of the companies that they suckered into taking these deals, could very well lead to something scary enough to get regulators and legislators involved. It's plausible, if not entirely likely, that Groupon, and their ilk, could very well kill IPOs for the rest of us for yet another decade.
  - ChuckFrank 15y ago
    I misunderstood. I thought you were saying that a weak IPO would result in additional regulations. I thought you were saying that it is in the tech segments best interest for solid IPO launches, so as to not taint other future IPO companies. And I was saying that the opposite was true, overinflated, unsubstantiated, and unsecured IPO will expose the industry to greater enforced accountability. As for the worst case scenario, for the sake of all the small business 'investors' in Groupon (though I'm not sure that they actually realize their participation), I certainly hope that something like this doesn't happen. However, considering the ugly and apparently underhanded 2010 funding play, some investigations may be in order. Besides which, the chairman of Groupon is already Mr. Class Action Lawsuit. So, based upon previous performance, one can likely predict future results in this case.
  - jbooth 15y ago
    There's a huge difference between this and Enron/Worldcom, which inspired Sarbanes Oxley. The latter two committed actual fraud. As in, this article would be saying "Wow, Groupon is hugely profitable" rather than the press we're seeing now.
    - 15y ago
- DrJokepu 15y ago
  Why does not it make sense?
- gaius 15y ago
  But it will tho', because remember that the actual money comes from people who think in terms of asset classes, not individual companies. If a pension fund or a university endowment says, let's reduce our exposure to Internet companies, then VCs get less money to play with.

by cletus 15y ago

ChuckFrank 15y ago

Based upon the mounting evidence about the condition of Groupon, cletus' fear "that a collapse of Groupon--which I actually see as a non unrealistic possibility--will taint other Internet/tech IPOs and, even worse, prompt the Federal government into more kneejerk regulation even stupider and more onerous than Sarbanes-Oxley." makes absolutely no sense. Suggesting that a poorly performing companies weak IPO, or otherwise, will taint other IPOs and prompt regulations makes no sense whatsoever. For the health and vigor of the tech markets, Groupon's IPO should be a spectacular failure based upon the poor business model and weaker financial position.

cletus 15y ago
Imagine a worst case scenario where Groupon files for Chapter 11 and defaults on all outstanding debts to merchants, which by that stage could amount to over a billion dollars (IIRC it's currently $280 million). Imagine that because of that lost revenue many small businesses end up collapsing. At the same time it becomes more public knowledge that 2010 funding rounds were to buy out early investors, who made out like bandits, and retail investors, pension funds and so on lose a huge stack of money. Now look at that (admittedly pessimistic) picture and try and tell me there won't at least be calls for "reform".
- SwellJoe 15y ago
  I think the more dangerous result will be that the scheme continues to "work" for another couple of years, a half dozen competitors come along and run the same basic scheme (with tweaks to make the new businesses "unique"; maybe they go for particular niches currently unserved or whatever), those companies also have explosive IPOs, and then the whole thing comes crashing down in a couple more years when the IPO money runs out. One company with a 280 million dollar bankruptcy (or, more realistically, by the time of the IPO it will be a few billion dollars) isn't going to make a big dent in how the markets work. But, a half dozen such companies in the same boat when the bottom falls out of the market and the fallout for all of the companies that they suckered into taking these deals, could very well lead to something scary enough to get regulators and legislators involved. It's plausible, if not entirely likely, that Groupon, and their ilk, could very well kill IPOs for the rest of us for yet another decade.
- ChuckFrank 15y ago
  I misunderstood. I thought you were saying that a weak IPO would result in additional regulations. I thought you were saying that it is in the tech segments best interest for solid IPO launches, so as to not taint other future IPO companies. And I was saying that the opposite was true, overinflated, unsubstantiated, and unsecured IPO will expose the industry to greater enforced accountability. As for the worst case scenario, for the sake of all the small business 'investors' in Groupon (though I'm not sure that they actually realize their participation), I certainly hope that something like this doesn't happen. However, considering the ugly and apparently underhanded 2010 funding play, some investigations may be in order. Besides which, the chairman of Groupon is already Mr. Class Action Lawsuit. So, based upon previous performance, one can likely predict future results in this case.
- jbooth 15y ago
  There's a huge difference between this and Enron/Worldcom, which inspired Sarbanes Oxley. The latter two committed actual fraud. As in, this article would be saying "Wow, Groupon is hugely profitable" rather than the press we're seeing now.
  - 15y ago
DrJokepu 15y ago
Why does not it make sense?
gaius 15y ago
But it will tho', because remember that the actual money comes from people who think in terms of asset classes, not individual companies. If a pension fund or a university endowment says, let's reduce our exposure to Internet companies, then VCs get less money to play with.