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LivingSocial: Employees' and Founders' Common Stock Now Worthless

314 points by donohoe 14y ago

ready_set_go 14y ago
If only they had beat Groupon to an IPO and been the ones to raise a warchest before the market realized these businesses were a terrible idea. Once this funding runs out they will probably be a great bargain basement acquisition for a handful of companies. I feel really bad for the hard working employees who were counting on the stock options =(
- aaronbrethorst 14y ago
  You should never count on stock options being anything other than a nice bonus that likely won't materialize. If you're taking a significant haircut on salary or benefits in order to have a shot at a big payday, you're doing it wrong. Join a startup because you think it'll be a fun ride, not to make a million dollars.
larrywright 14y ago
This isn't terribly surprising, they've been losing engineering talent left and right. It was pretty easy to infer that they were in trouble.
- petercooper 14y ago
  To be fair though, I know that you (and I!) follow more Rubyists than the average HN reader or analyst ;-)
ericz 14y ago
Can someone speak to the reliability of this site? Or provide a corroborating source?
- signed0 14y ago
  The Washington Post & Reuters corroborate the statement that Living Social received $110 million in funding, though neither says anything about stock options. http://www.washingtonpost.com/business/economy/livingsocial-receives-110-million-cash-infusion/2013/02/20/618163ea-7b79-11e2-9a75-dab0201670da_story.html http://www.washingtonpost.com/business/economy/livingsocial-... http://www.reuters.com/article/2013/02/20/us-livingsocial-idUSBRE91J0UK20130220 http://www.reuters.com/article/2013/02/20/us-livingsocial-id...
tomasien 14y ago
I know some of Living Social's original investors, and I approached them for an investment in my startup about 8 months ago. Part of our pitch was that daily deals solve and amazingly valuable problem in an inherently not-valuable way, and although our system would take less of a straight line, it would and already WAS solving the problem for a small subset of businesses in a more valuable and vastly more sustainable way. They ultimately passed on the investment, our last gasp to survive, because "Living Social was obviously their flagship, and they didn't want something who's core value proposition was that Living Social was doomed, which is obviously isn't." That's very close to a direct quote. This doesn't make me happy. I hope Living Social figures it out. They realized Daily Deals were doomed even before Groupon did and tried to work out other revenue streams. I hope this report isn't even true. But God damned if I didn't tell'm so.
- rtfeldman 14y ago
  Whether or not they privately thought you were right, openly betting against one's own companies is rarely a prudent move for any investor.
  - ricardobeat 14y ago
    Fun fact: Stripe is backed by three out of five Paypal founders. In my layman's view, that's a prudent move, similar to neutral/risk reversal stock trading strategies. Of course VC is about more than just money, but still.
  - notJim 14y ago
    Is that true? Isn't that basically what hedging is?
  - incongruity 14y ago
    The simple fact is that over the long (enough) run, there is no such thing as sustainable competitive advantage – markets change, grow, shrink, die – if you're not actively exploring what will replace your offering or share the market with it, you can rest assured that someone else is and eventually, they will enter your space. So, IMHO, the smart money finds the best alternatives and bets on them too, at some point... (or they exit, if the market is simply going to die, but that's another angle).
kbar13 14y ago
* This Has To Be The Worst Written Article I've Seen In A While * Who Designed This Piece Of Art?
- deleted 14y ago
  [deleted]
  - ricardobeat 14y ago
    thatsthejoke.jpg (sorry)
    - mattmaroon 14y ago
      Oh, duh.
grainawi 14y ago
this is extremely sad to see. hopefully this report is exaggerated and not entirely true. that said, the daily deal model is clearly broken.
- tyang 14y ago
  Yes, and I'd argue the daily deal model never worked in the first place. Why? No real value add to small businesses. The daily deal model was an experiment that went on too long, overfunded by delusional investors - some playing with other people's money - and media and social media hype. You know what model isn't broken? Positive cash flow businesses. :)
hakaaaaak 14y ago
Will the deals already bought still be valid if they go under?
- djt 14y ago
  I imagine they will become unsecured debtors
pshin45 14y ago
I've always felt that companies like Groupon, LivingSocial, and Zynga do way more harm than good. Early on I was impressed by how well these startups were able to capture mainstream attention and change the way so many people live and behave. But at the end of the day, what value does Groupon and Zynga actually add to society? I'm of the opinion that most daily deals and social gaming companies bring out our most primitive and animalistic tendencies (addiction and impulsiveness), and are antithetical to human progress. If this is the beginning of the end of LivingSocial and daily deals then good riddance I say.
- mehrzad 14y ago
  >are antithetical to human progress. This can be said of many startups, and this fact is causing a reactionary feeling toward the Valley in many tech/neckbeard circles.
  - pshin45 14y ago
    Agree, technology for the sake of technology and growth for the sake of growth does not a business (or social good) make. I love so much of what YC does but I wish their motto was not "Make something people want" but rather "Make something people need" because the two can often be diametrically opposed. Kinda like how a parent should not always give their child everything he/she wants (candy at every meal, constant attention, making a mess/scene everywhere you go, etc). If we as startups only tried to make stuff people "want" then the world might end up looking like the dystopian society in the 2006 film "Idiocracy".
    - mehrzad 14y ago
      If tech were really like that, maybe Tent and Spideroak would be more popular. If only.
- argonaut 14y ago
  Please define "good" and "human progress." In my experience these terms are often so nebulous as to be meaningless when applied to companies. EDIT: How can you conclude that I'm wrong if even you haven't defined "good" and "human progress" in your argument?
bruceb 14y ago
I was in their Seattle office and they seemed to be spending money on things needlessly. They had events where they spend hundreds yet only brought in 20 people at maybe $10 a piece. Can't say I am surprised.
addlepate 14y ago
Very sad. I have some good friends who work there.
taf2 14y ago
This is absolutely terrible news. I don't care if you "like the daily deals business model" or "hate the daily deals business model" - this is very very bad news for a lot of people. It will have impact on the rest of the industry and perhaps already has. We should be very disappointed that things have gone south in this way. We should work harder to build profit into our businesses and we should hope still that LivingSocial can pull itself above water... Best wishes go out to everyone there...
- kschrader 14y ago
  Some of us do work hard to build profitable businesses. I don't think that one bad investment deal is going to make a big difference.
- ma2rten 14y ago
  Maybe I am being too insensitive, but ... I think that if the valuation for companies, which have been overvalued corrects itself, that is ultimately a good thing for the industry and society at large. It means that resources are being freed up to work on more valuable things. It is also another case study from which this young industry can learn. As for the employee and investors, they have taken a deliberate bet on the company and lost their stakes. This is what you sign up for when you decide to work for / invest in a start up.
  - guy_c 14y ago
    I like your perspective on this. It is impossible to see the 'damage' done by capital applied (or over applied) to the wrong thing. So people don't really think about it. What great things were NOT created by the great people LivingSocial hired.
- retrogradeorbit 14y ago
  Creative destruction frees resources for more viable ventures.
deleted 14y ago
[deleted]
moocow01 14y ago
You never would have thought by their office space that anything was wrong... http://www.businessinsider.com/living-social-office-tour-2012-8?op=1 http://www.businessinsider.com/living-social-office-tour-201...
- xeon47m 14y ago
  So true, also surprised they didn't have a super bowl commercial. It's like the dot com hype all over again but with crazy short term revenue that's unsustainable
  - kylemhill 14y ago
    But they did have a Super Bowl commercial: http://www.youtube.com/watch?v=33jb2Ns7yaQ http://www.youtube.com/watch?v=33jb2Ns7yaQ
- doktrin 14y ago
  Yep. For those not familiar with the area, LS headquarters are almost literally a stones throw from the White House (read : very expensive real estate). The "Hungry Academy" mention is easy to miss, but that's actually an entire floor unto itself.
- damoncali 14y ago
  Kind of takes you back to 1999.
teej 14y ago
Over 5 years ago I turned down an offer to work at LivingSocial. Last year, I would've been worth $10 million on paper. All of that fake wealth evaporated today. What a mess.
- xeon47m 14y ago
  Did another company offering options take its place?
- fatbird 14y ago
  Had you approached the offer cynically, how much of that money could you have gotten out before this collapse?
  - wpietri 14y ago
    Probably none. Generally common shareholders don't see a nickel until a liquidity event. That is, getting bought or doing an IPO.
- jarin 14y ago
  I bombed on my interview there last year. Not feeling so bad about it now.
  - tocomment 14y ago
    What went wrong at the interview? BTW, is this going to hurt the market for Django developers in DC?
    - jarin 14y ago
      I interviewed with three people. First, I interviewed with two developers, one of whom seemed like he may have been a manager. The questions that I think doomed me were questions about HTTP status codes and CSRF/XSS attacks. The HTTP status code thing went something like "Why don't you name off some HTTP status codes?" So I rattled off the ones I knew off the top of my head, but then he asked me for more. It's the kind of question you can look up in about 30 seconds if you need to, but in an interview setting it's difficult to recall the ones you don't see often. The manager guy also asked me to describe CSRF and XSS and the details of how those exploits work. I knew what they were, but I hadn't actually examined or written one before. I did learn about them inside and out when I completed the latest Stripe CTF though. I thought that question was reasonable, and I just didn't know it. There were also some questions about caching in high-traffic environments, which I didn't know much about but I knew enough about it to tell them that I would be able to pick it up quickly. I don't think they liked when I admitted not knowing something though. It also seemed kind of interesting that there was so much emphasis on it since I wasn't interviewing to work with the main developer team but with one of their splinter offices who builds proofs of concept and prototypes. I did pretty well on the rest of it, including the 2nd part of the interview with one of their in-house tool developers. There was supposed to be a third part where I would have interviewed with a non-developer to assess culture fit, but they ended my interview before that part. I think I probably bombed it because I've been consulting for a long time and have a different development approach than they were looking for.
pbreit 14y ago
I can't see Living Social surviving if it really is short that much money owed to merchants. Why on earth would any new merchants join at this point knowing that Living Social is reasonably unlikely to be able to pay them? I'm a bit surprised the company is so nonchalant about running that far behind on merchant payables. An easy argument could be made that it should not have dipped in to merchant funds at all and all that cash should have been "restricted". Also, the cheap shot on Groupon is pretty lame considering that Groupon has something like 2x the cash on had as it owes merchants (if I'm reading Sep '12 Balance Sheet correctly).
goronbjorn 14y ago
I wonder what this means for Amazon.
- tyang 14y ago
  About as much as a fly on a windshield.
- apapli 14y ago
  Would it mean anything? Genuine question - where do you see a connection?
  - cpeterso 14y ago
    Amazon held a 29% stake in LivingSocial as of the end of 2012.
- donavanm 14y ago
  Amazon had about 60 billion in revenue last year. 1/3 of 150M inst so much. Jeffy B wrote a personal check for ~30M to get in on über, for comparison. Edit: totally forgot, amazon already wrote most (all?) of the living social investment last year. So I guess they got out when the gettin was slightly less terrible.
jes5199 14y ago
What a weird, weird company. There was a time when fully half of the talented rubyists I knew were joining LivingSocial all at once. And none of them could tell me why the company needed such incredible firepower. I guess they never figured it out.
tamersalama 14y ago
I wonder what will be of talent acquisition happened along the way.
confluence 14y ago
Here are a few tips for others startup employees: 1. Take the least amount of stock possible - your startup is statistically unlikely to succeed. It'd be better to bump your salary up $10-20K than to get the stock. 2. Unless it's liquid - it's worthless. 3. Valuations pre-cashflow - are useless. Anybody can value anything at insane levels using just one dollar. I value HN at $1 billion by offering to buy only 1 share of 1 billion in common stock for $1 right now. See the implicit valuation leverage. I took a dollar, then invented the billion. 4. If you work for a "nasty" startup - one which people can consider to be negative long term to one or more parties - expect eventual collapse or flat line growth (Zynga/Groupon). 5. Companies exist to make management, investors and founders rich - they hold the vast majority of the stock - and benefit greatly from path dependence and network effects. You on the other hand don't. Expect to be screwed at any time. Think of it like this. Managers/founders of most companies are pretty dipshit - how is it that they can own so much more stock? Simple. Be there earlier! Akin to how old money works. Imagine if you were the first person to squat land near what has now become Manhattan. You'd easily be worth hundreds of millions. There is obviously some skill in researching, predicting, working and acquiring land that will soon appreciate in value. But it's not worth nearly that much. Path dependence, luck and network effects do that. See GFC boom and that dumbass cousin who made and almost certainly lost millions in housing to understand how this works out. Startups really aren't that different to a speculative investment in a house during boom times. Once you understand this - a lot of things start to make a hell of a lot more sense. 6. PG says be relentlessly resourceful. That's useful. But even better is to be relentlessly cynical. Free t-shirts? Just an easy way to drop your salary and indoctrinate you - scratch that - it's a god damn uniform - freedom be damned! Free food? You took a $30-$40K pay cut to take the damn job - the food isn't worth a tenth of that + you're now working during lunch hours! Free hardware? That's only $2-$4K. Hackathons? That's just work during your free time - or if it's during work time, it's a startup product you should own, but don't. More days off? Aren't you already working 60+ hours a week today! Culture shit after work? That's just more indoctrination. Gym membership? Only $200-500 - peanuts! Flexible work hours? That just means work more, but do it at times that aren't 9-5. Parental leave? Big companies and Europe have had that for ages. Oh, and that culture fit crap? That's just discrimination - rebranded! What? You don't like what other late 20s upper-class educated males like? Be gone heathen! End advice. Not saying big companies or government jobs are any better. But at the very least you're already cynical about those things and demand to get paid well enough in risk-adjusted terms.
colmvp 14y ago
$110 million seems like a drop in the bucket if they really are bleeding money and have 4000+ employees, many of whom are probably very upset at the evaporation of their stock options.
- deleted 14y ago
  [deleted]
- jasonlotito 14y ago
  FTA: Sources said LivingSocial's Board made clear this was the final lifeline, that the company must break even by the end of the year including closing dozens of unprofitable offices and laying off thousands of employees
karoramj23 14y ago
As an independent restaurant owner, I can't say I didn't expect to see this one day. The model simply doesn't work, at least in our industry. The restaurant loses money on every single "daily deal" that is redeemed. With LivingSocial or (insert any other daily deal site here) taking half of the deal, the restaurant is simply left with 25% of the revenue generated. This does not even cover our food costs, let alone labor. The rise of daily deal businesses have brought up a couple of fundamental issues for us: 1)Customers are often daily deal hunters - We would be willing to take the one-time loss on a daily deal, if we had a chance of converting the customers into regular diners. However, we have found that most people who purchase these deals, simply move on to the next deal after they are done. 2) Cheapens the product - Once you have lowered the price for a product, in this case food, the guest automatically ties the value of that product back to the price they paid. This is a huge problem for restaurants in particular because the guest is not willing to pay full price for the product even if they liked it. Now your product is valued at half of your current price, and to get that customer back in the door, you have to offer a significant discount again (most likely another daily deal). 3) Cannibalizes our existing customer base - One of the worst unintended consequences of using daily deals is that some of your regular guests start waiting for these deals, and only come in when they are available. This hurts in two ways: 1) regular guests are now spending less than they were the last time they came in, 2) regular guests are now waiting for a LivingSocial/Groupon deal to become available before returning to the restaurant causing them to wait longer before returning to the restaurant. I believe that a company that provides customer acquisition via deals could be extremely valuable, but they must do it properly, and most importantly it must benefit their customer (in this case the restaurant). Until a company learns how to ensure that a business is obtaining a profit from providing this massive discount, without cheapening the product, and cannibalizing existing sales, the daily deals industry will continue to fall by the wayside.
- DodgyEggplant 14y ago
  "taking half of the deal". This is the problem. A modest marketing website with less grid and bubble orientation could take 5%, make wonderful profit, and boost it's customers.
- grey-area 14y ago
benmanns 14y ago
Not enough cash to pay local merchants? If I were a merchant on LivingSocial I would be cancelling any further deals and notifying my customers that they should be filing chargebacks. I doubt the credit card companies would let LivingSocial off as easily as their employees had to.
DigitalSea 14y ago
I am honestly surprised they've lasted this long. The whole current premise of daily deals does not work whatsoever. Every business owner I've ever known that has done one of these daily deals has never done them twice, why? Because every deal offerer (restaurant, beauty spa, dentist, tooth whitening formula company, discounted holiday) loses out and it has been proven a daily deal coupon doesn't mean you'll get a return customer because lets face it, most of the people buying these daily deal vouchers like bargains and your standard price offering is probably way out of their affordability league. I once considered a daily deals type site where the premise was there is a strictly limited number of deals driving up the demand and at the same time, not bankrupting the family owned hardware store because 800 people bought their $500 worth of tools for $120 voucher because they thought more vouchers would mean more return business. Sucks about the stock though, I'm sure every single employee of LivingSocial deserves that money, they had a good thing going. I feel sorry for the families of the employees who are about to lose their jobs. They say the economy is on the mend, the increasing number of failing business stories I read every week says otherwise...
- damian2000 14y ago
  If you're going to use a daily deals site, come into it not expecting a profit and look at it for what it is ... a form of cheap marketing. I know a couple of businesses that have used them and found it generated a decent amount of additional sales. Mind you that was about 2 years ago.
  - chii 14y ago
    it's not cheap if youre making a loss on every deal and the number isn't capped. its a good channel if you manage it properly tho.
j45 14y ago
Whenever someone offers you equity or shares.... Try to remember how many times it ends up being worth something, and staying something. otoh, getting valuable mentorship like YC is probably worth paying for.
doktrin 14y ago
> But despite our Current Liabilities being high, they at least are not as frightening as Groupon's Merchant Payables gap, as Groupon pays out usually in 1/3rds (30 days, 60 days, then 90 days), while at LivingSocial, we usually pay 80% of the total daily deal's sales to a merchant within 10 days of the offer ending, and then we owe them the other 20% months later. So yes we owe local merchants a lot of money, more than our Cash, and these Merchant Payables are most of our Current Liabilities as PrivCo surmised, but I will point out thta at least it's not as as great a portion of our Current Liabilities as Groupon's. What's with the Groupon deflection spin? LS clearly screwed up here. Pointing fingers at Groupon as an even-worse-offender achieves literally nothing.
- imjk 14y ago
  I agree. You could even argue from a business perspective that Groupon's making a wiser business decision by using the time value of money more in its favor.
Wista 14y ago
This is an example of a flawed business model, copied (from Groupon, et al), then over-funded so that the economic viability of the Model does not surface as soon as it should. In the finance world these often called Ponzi schemes, just saying...
damian2000 14y ago
Anyone know how they are doing outside the US? Over here in Asutralia for example they seem to be selling plenty of vouchers. I know some businesses that use them often.
- freshyill 14y ago
  I was laid off in November. Last we heard, they were doing quite well in Asian countries, particularly in Korea. This is what they told us, anyway. They also told us last fall that profitability was right around the corner.
tyang 14y ago
This headline is misleading, because it implies the common stock was worth something at one point. :)
pmboyd 14y ago
The fact that investors are putting up the money means there is some hope to the business. Not every startup gets that ... People seem to really focus on the negative. Startups are known to be bimodal outcomes. Either you retire from them or your income is down a few years. If you don't believe in a specific startup, don't work for them. If you don't believe in any startup, go work somewhere else.
callmeed 14y ago
Out of curiosity: If LivingSocial files for bankruptcy and fails to pay merchants, are those merchants still required to honor any outstanding deal vouchers?
ericz 14y ago
Perhaps I'm missing something here -- people criticize group deal sites for taking too much of the money in a deal (50% of the revenue). The marginal cost for LivingSocial on this is 0... why aren't they making tons of money? Where has the near $1 billion dollars gone?
- jsankey 14y ago
  You're assuming it costs LivingSocial nothing to enlist a new business willing to offer a deal. I'm sure this is a huge cost for them, especially considering this is a "land grab" phase where there is fierce competition from other deal sites.
- tessa_82 14y ago
  Daily deal sites burn huge amounts of money on online advertising and a massive sales team. People talk about these companies as if they are tech yet there is such a huge people component that does not scale. Groupon at peak had over 7000 sales people which is insane!
planetjones 14y ago
Google must be relieved that they didn't end up 6 billion dollars out of pocket and holding the sinking ship that is Groupon. The marker is saturated, businesses have had enough of getting little in return and consumers are getting annoyed with their inboxes full of annoying offers.
clamattack 14y ago
Only tangentially related maybe, but I've noticed an increase in the 'scamminess' of a lot of daily deals lately. Stuff like a cottage for £70/weekend but if you read the small print there's a 'cleaning charge' of £250 - to give one recent example. I don't know if that perhaps hints at the desperateness of daily deal companies to get new business in running such promotions, but it certainly dampens any enthusiasm I have for checking these sites again in the future.
robryan 14y ago
The part where group deals fall down is the big margin that the sites are taking, this is the difference between a deal being a break even or loss leader and putting the business offering the deal in a big financial hole. These margins are required to pay for a large sales team to convince businesses that they need to run these deals. I think a more sustainable model is one closer to traditional affiliates marketing or self serve advertising. Where the deals site provides a platform that is largely self service and takes say a 5% cut rather than 50%. This does loose one of the original ideals of group deals, that there was only 1 for an area (or at least a small amount each day) so each business running a deal was able to get a ton of exposure.
nemesisj 14y ago
I think one thing to remember when joining a company, particularly one of the higher profile startups that raise huge sums of money is that values really matter. Not mission statement values, but the actions that are consistently taken on a daily basis. Is your startup or employer profitable? No? Then why are they spending money on nice offices and expensive dinners and so on? I can almost guarantee that LivingSocial could have done with less than the 800 million it raised had they valued frugality and breaking even more than being some giant media darling worth-a-billion company. Deficit spending can work longterm for governments, but not for companies or individuals. It's a real shame everyone got cleaned out, but they had to know this was going to happen at some point.
deleted 14y ago
[deleted]
photorized 14y ago
The investors must have had one of those 75% off coupons. I honestly don't understand how these sites manage to raise any money at all, regardless of valuation.
- jonnysilk 14y ago
  In the early years of Groupon it was seen as coupons moving online to create a new business model that was going to drive retail. The sites had off the charts growth, huge revenue dollars that were growing just as fast and the land was up for grabs. Even Google got suckered into this when it tried to buy Groupon for billions in cash, I can see where the investors were coming from, well at least before 2011.
joeco 14y ago
Are there any corroborating reports on this? I can't find any. I'm calling BS.
- wallawe 14y ago
  And you are correct, sir.
mattetti 14y ago
Here is the indirect response of LivingSocial's CEO via a leaked memo reported by CNN: http://finance.fortune.cnn.com/2013/02/21/what-really-happened-at-livingsocial/ http://finance.fortune.cnn.com/2013/02/21/what-really-happen... It doesn't mean that most of the advices here aren't just that PrivCo might be making up stuff stories.
kamloops 14y ago
I value the people who would be your potential co-workers and the social impact your work makes over how much stock I'd get or the "20% time" I'm given to work on non-core projects. Startups do give you the opportunity to have a more hands-on role at the company considering the size of the engineering staff. Naturally (if you're driven and you're confident in your ideas and can work well with people), can make a bigger impact at a smaller company/startup than at some of the more established tech giants. I think experience you gain far outweighs the slim chance your 3000 shares of common stock will amount to anything. You can take that experience with you to a larger tech company.
joonix 14y ago
An email newsletter list was valued at $5 billion.

314 points by donohoe 14y ago

If only they had beat Groupon to an IPO and been the ones to raise a warchest before the market realized these businesses were a terrible idea. Once this funding runs out they will probably be a great bargain basement acquisition for a handful of companies. I feel really bad for the hard working employees who were counting on the stock options =(

aaronbrethorst 14y ago
You should never count on stock options being anything other than a nice bonus that likely won't materialize. If you're taking a significant haircut on salary or benefits in order to have a shot at a big payday, you're doing it wrong. Join a startup because you think it'll be a fun ride, not to make a million dollars.

larrywright 14y ago

This isn't terribly surprising, they've been losing engineering talent left and right. It was pretty easy to infer that they were in trouble.

petercooper 14y ago
To be fair though, I know that you (and I!) follow more Rubyists than the average HN reader or analyst ;-)

ericz 14y ago

Can someone speak to the reliability of this site? Or provide a corroborating source?

signed0 14y ago
The Washington Post & Reuters corroborate the statement that Living Social received $110 million in funding, though neither says anything about stock options. http://www.washingtonpost.com/business/economy/livingsocial-receives-110-million-cash-infusion/2013/02/20/618163ea-7b79-11e2-9a75-dab0201670da_story.html http://www.washingtonpost.com/business/economy/livingsocial-... http://www.reuters.com/article/2013/02/20/us-livingsocial-idUSBRE91J0UK20130220 http://www.reuters.com/article/2013/02/20/us-livingsocial-id...

tomasien 14y ago

I know some of Living Social's original investors, and I approached them for an investment in my startup about 8 months ago. Part of our pitch was that daily deals solve and amazingly valuable problem in an inherently not-valuable way, and although our system would take less of a straight line, it would and already WAS solving the problem for a small subset of businesses in a more valuable and vastly more sustainable way. They ultimately passed on the investment, our last gasp to survive, because "Living Social was obviously their flagship, and they didn't want something who's core value proposition was that Living Social was doomed, which is obviously isn't." That's very close to a direct quote. This doesn't make me happy. I hope Living Social figures it out. They realized Daily Deals were doomed even before Groupon did and tried to work out other revenue streams. I hope this report isn't even true. But God damned if I didn't tell'm so.

rtfeldman 14y ago
Whether or not they privately thought you were right, openly betting against one's own companies is rarely a prudent move for any investor.
- ricardobeat 14y ago
  Fun fact: Stripe is backed by three out of five Paypal founders. In my layman's view, that's a prudent move, similar to neutral/risk reversal stock trading strategies. Of course VC is about more than just money, but still.
- notJim 14y ago
  Is that true? Isn't that basically what hedging is?
- incongruity 14y ago
  The simple fact is that over the long (enough) run, there is no such thing as sustainable competitive advantage – markets change, grow, shrink, die – if you're not actively exploring what will replace your offering or share the market with it, you can rest assured that someone else is and eventually, they will enter your space. So, IMHO, the smart money finds the best alternatives and bets on them too, at some point... (or they exit, if the market is simply going to die, but that's another angle).

kbar13 14y ago

* This Has To Be The Worst Written Article I've Seen In A While * Who Designed This Piece Of Art?

deleted 14y ago
[deleted]
- ricardobeat 14y ago
  thatsthejoke.jpg (sorry)
  - mattmaroon 14y ago
    Oh, duh.

grainawi 14y ago

this is extremely sad to see. hopefully this report is exaggerated and not entirely true. that said, the daily deal model is clearly broken.

tyang 14y ago
Yes, and I'd argue the daily deal model never worked in the first place. Why? No real value add to small businesses. The daily deal model was an experiment that went on too long, overfunded by delusional investors - some playing with other people's money - and media and social media hype. You know what model isn't broken? Positive cash flow businesses. :)

hakaaaaak 14y ago

Will the deals already bought still be valid if they go under?

djt 14y ago
I imagine they will become unsecured debtors

pshin45 14y ago

I've always felt that companies like Groupon, LivingSocial, and Zynga do way more harm than good. Early on I was impressed by how well these startups were able to capture mainstream attention and change the way so many people live and behave. But at the end of the day, what value does Groupon and Zynga actually add to society? I'm of the opinion that most daily deals and social gaming companies bring out our most primitive and animalistic tendencies (addiction and impulsiveness), and are antithetical to human progress. If this is the beginning of the end of LivingSocial and daily deals then good riddance I say.

mehrzad 14y ago
>are antithetical to human progress. This can be said of many startups, and this fact is causing a reactionary feeling toward the Valley in many tech/neckbeard circles.
- pshin45 14y ago
  Agree, technology for the sake of technology and growth for the sake of growth does not a business (or social good) make. I love so much of what YC does but I wish their motto was not "Make something people want" but rather "Make something people need" because the two can often be diametrically opposed. Kinda like how a parent should not always give their child everything he/she wants (candy at every meal, constant attention, making a mess/scene everywhere you go, etc). If we as startups only tried to make stuff people "want" then the world might end up looking like the dystopian society in the 2006 film "Idiocracy".
  - mehrzad 14y ago
    If tech were really like that, maybe Tent and Spideroak would be more popular. If only.
argonaut 14y ago
Please define "good" and "human progress." In my experience these terms are often so nebulous as to be meaningless when applied to companies. EDIT: How can you conclude that I'm wrong if even you haven't defined "good" and "human progress" in your argument?

bruceb 14y ago

I was in their Seattle office and they seemed to be spending money on things needlessly. They had events where they spend hundreds yet only brought in 20 people at maybe $10 a piece. Can't say I am surprised.

addlepate 14y ago

Very sad. I have some good friends who work there.

taf2 14y ago

This is absolutely terrible news. I don't care if you "like the daily deals business model" or "hate the daily deals business model" - this is very very bad news for a lot of people. It will have impact on the rest of the industry and perhaps already has. We should be very disappointed that things have gone south in this way. We should work harder to build profit into our businesses and we should hope still that LivingSocial can pull itself above water... Best wishes go out to everyone there...

kschrader 14y ago
Some of us do work hard to build profitable businesses. I don't think that one bad investment deal is going to make a big difference.
ma2rten 14y ago
Maybe I am being too insensitive, but ... I think that if the valuation for companies, which have been overvalued corrects itself, that is ultimately a good thing for the industry and society at large. It means that resources are being freed up to work on more valuable things. It is also another case study from which this young industry can learn. As for the employee and investors, they have taken a deliberate bet on the company and lost their stakes. This is what you sign up for when you decide to work for / invest in a start up.
- guy_c 14y ago
  I like your perspective on this. It is impossible to see the 'damage' done by capital applied (or over applied) to the wrong thing. So people don't really think about it. What great things were NOT created by the great people LivingSocial hired.
retrogradeorbit 14y ago
Creative destruction frees resources for more viable ventures.

deleted 14y ago

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moocow01 14y ago

You never would have thought by their office space that anything was wrong... http://www.businessinsider.com/living-social-office-tour-2012-8?op=1 http://www.businessinsider.com/living-social-office-tour-201...

xeon47m 14y ago
So true, also surprised they didn't have a super bowl commercial. It's like the dot com hype all over again but with crazy short term revenue that's unsustainable
- kylemhill 14y ago
  But they did have a Super Bowl commercial: http://www.youtube.com/watch?v=33jb2Ns7yaQ http://www.youtube.com/watch?v=33jb2Ns7yaQ
doktrin 14y ago
Yep. For those not familiar with the area, LS headquarters are almost literally a stones throw from the White House (read : very expensive real estate). The "Hungry Academy" mention is easy to miss, but that's actually an entire floor unto itself.
damoncali 14y ago
Kind of takes you back to 1999.

teej 14y ago

Over 5 years ago I turned down an offer to work at LivingSocial. Last year, I would've been worth $10 million on paper. All of that fake wealth evaporated today. What a mess.

xeon47m 14y ago
Did another company offering options take its place?
fatbird 14y ago
Had you approached the offer cynically, how much of that money could you have gotten out before this collapse?
- wpietri 14y ago
  Probably none. Generally common shareholders don't see a nickel until a liquidity event. That is, getting bought or doing an IPO.
jarin 14y ago
I bombed on my interview there last year. Not feeling so bad about it now.
- tocomment 14y ago
  What went wrong at the interview? BTW, is this going to hurt the market for Django developers in DC?
  - jarin 14y ago
    I interviewed with three people. First, I interviewed with two developers, one of whom seemed like he may have been a manager. The questions that I think doomed me were questions about HTTP status codes and CSRF/XSS attacks. The HTTP status code thing went something like "Why don't you name off some HTTP status codes?" So I rattled off the ones I knew off the top of my head, but then he asked me for more. It's the kind of question you can look up in about 30 seconds if you need to, but in an interview setting it's difficult to recall the ones you don't see often. The manager guy also asked me to describe CSRF and XSS and the details of how those exploits work. I knew what they were, but I hadn't actually examined or written one before. I did learn about them inside and out when I completed the latest Stripe CTF though. I thought that question was reasonable, and I just didn't know it. There were also some questions about caching in high-traffic environments, which I didn't know much about but I knew enough about it to tell them that I would be able to pick it up quickly. I don't think they liked when I admitted not knowing something though. It also seemed kind of interesting that there was so much emphasis on it since I wasn't interviewing to work with the main developer team but with one of their splinter offices who builds proofs of concept and prototypes. I did pretty well on the rest of it, including the 2nd part of the interview with one of their in-house tool developers. There was supposed to be a third part where I would have interviewed with a non-developer to assess culture fit, but they ended my interview before that part. I think I probably bombed it because I've been consulting for a long time and have a different development approach than they were looking for.

pbreit 14y ago

I can't see Living Social surviving if it really is short that much money owed to merchants. Why on earth would any new merchants join at this point knowing that Living Social is reasonably unlikely to be able to pay them? I'm a bit surprised the company is so nonchalant about running that far behind on merchant payables. An easy argument could be made that it should not have dipped in to merchant funds at all and all that cash should have been "restricted". Also, the cheap shot on Groupon is pretty lame considering that Groupon has something like 2x the cash on had as it owes merchants (if I'm reading Sep '12 Balance Sheet correctly).

goronbjorn 14y ago

I wonder what this means for Amazon.

tyang 14y ago
About as much as a fly on a windshield.
apapli 14y ago
Would it mean anything? Genuine question - where do you see a connection?
- cpeterso 14y ago
  Amazon held a 29% stake in LivingSocial as of the end of 2012.
donavanm 14y ago
Amazon had about 60 billion in revenue last year. 1/3 of 150M inst so much. Jeffy B wrote a personal check for ~30M to get in on über, for comparison. Edit: totally forgot, amazon already wrote most (all?) of the living social investment last year. So I guess they got out when the gettin was slightly less terrible.

jes5199 14y ago

What a weird, weird company. There was a time when fully half of the talented rubyists I knew were joining LivingSocial all at once. And none of them could tell me why the company needed such incredible firepower. I guess they never figured it out.

tamersalama 14y ago

I wonder what will be of talent acquisition happened along the way.

confluence 14y ago

Here are a few tips for others startup employees: 1. Take the least amount of stock possible - your startup is statistically unlikely to succeed. It'd be better to bump your salary up $10-20K than to get the stock. 2. Unless it's liquid - it's worthless. 3. Valuations pre-cashflow - are useless. Anybody can value anything at insane levels using just one dollar. I value HN at $1 billion by offering to buy only 1 share of 1 billion in common stock for $1 right now. See the implicit valuation leverage. I took a dollar, then invented the billion. 4. If you work for a "nasty" startup - one which people can consider to be negative long term to one or more parties - expect eventual collapse or flat line growth (Zynga/Groupon). 5. Companies exist to make management, investors and founders rich - they hold the vast majority of the stock - and benefit greatly from path dependence and network effects. You on the other hand don't. Expect to be screwed at any time. Think of it like this. Managers/founders of most companies are pretty dipshit - how is it that they can own so much more stock? Simple. Be there earlier! Akin to how old money works. Imagine if you were the first person to squat land near what has now become Manhattan. You'd easily be worth hundreds of millions. There is obviously some skill in researching, predicting, working and acquiring land that will soon appreciate in value. But it's not worth nearly that much. Path dependence, luck and network effects do that. See GFC boom and that dumbass cousin who made and almost certainly lost millions in housing to understand how this works out. Startups really aren't that different to a speculative investment in a house during boom times. Once you understand this - a lot of things start to make a hell of a lot more sense. 6. PG says be relentlessly resourceful. That's useful. But even better is to be relentlessly cynical. Free t-shirts? Just an easy way to drop your salary and indoctrinate you - scratch that - it's a god damn uniform - freedom be damned! Free food? You took a $30-$40K pay cut to take the damn job - the food isn't worth a tenth of that + you're now working during lunch hours! Free hardware? That's only $2-$4K. Hackathons? That's just work during your free time - or if it's during work time, it's a startup product you should own, but don't. More days off? Aren't you already working 60+ hours a week today! Culture shit after work? That's just more indoctrination. Gym membership? Only $200-500 - peanuts! Flexible work hours? That just means work more, but do it at times that aren't 9-5. Parental leave? Big companies and Europe have had that for ages. Oh, and that culture fit crap? That's just discrimination - rebranded! What? You don't like what other late 20s upper-class educated males like? Be gone heathen! End advice. Not saying big companies or government jobs are any better. But at the very least you're already cynical about those things and demand to get paid well enough in risk-adjusted terms.

colmvp 14y ago

$110 million seems like a drop in the bucket if they really are bleeding money and have 4000+ employees, many of whom are probably very upset at the evaporation of their stock options.

deleted 14y ago
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jasonlotito 14y ago
FTA: Sources said LivingSocial's Board made clear this was the final lifeline, that the company must break even by the end of the year including closing dozens of unprofitable offices and laying off thousands of employees

karoramj23 14y ago

As an independent restaurant owner, I can't say I didn't expect to see this one day. The model simply doesn't work, at least in our industry. The restaurant loses money on every single "daily deal" that is redeemed. With LivingSocial or (insert any other daily deal site here) taking half of the deal, the restaurant is simply left with 25% of the revenue generated. This does not even cover our food costs, let alone labor. The rise of daily deal businesses have brought up a couple of fundamental issues for us: 1)Customers are often daily deal hunters - We would be willing to take the one-time loss on a daily deal, if we had a chance of converting the customers into regular diners. However, we have found that most people who purchase these deals, simply move on to the next deal after they are done. 2) Cheapens the product - Once you have lowered the price for a product, in this case food, the guest automatically ties the value of that product back to the price they paid. This is a huge problem for restaurants in particular because the guest is not willing to pay full price for the product even if they liked it. Now your product is valued at half of your current price, and to get that customer back in the door, you have to offer a significant discount again (most likely another daily deal). 3) Cannibalizes our existing customer base - One of the worst unintended consequences of using daily deals is that some of your regular guests start waiting for these deals, and only come in when they are available. This hurts in two ways: 1) regular guests are now spending less than they were the last time they came in, 2) regular guests are now waiting for a LivingSocial/Groupon deal to become available before returning to the restaurant causing them to wait longer before returning to the restaurant. I believe that a company that provides customer acquisition via deals could be extremely valuable, but they must do it properly, and most importantly it must benefit their customer (in this case the restaurant). Until a company learns how to ensure that a business is obtaining a profit from providing this massive discount, without cheapening the product, and cannibalizing existing sales, the daily deals industry will continue to fall by the wayside.

DodgyEggplant 14y ago
"taking half of the deal". This is the problem. A modest marketing website with less grid and bubble orientation could take 5%, make wonderful profit, and boost it's customers.
grey-area 14y ago

benmanns 14y ago

Not enough cash to pay local merchants? If I were a merchant on LivingSocial I would be cancelling any further deals and notifying my customers that they should be filing chargebacks. I doubt the credit card companies would let LivingSocial off as easily as their employees had to.

DigitalSea 14y ago

I am honestly surprised they've lasted this long. The whole current premise of daily deals does not work whatsoever. Every business owner I've ever known that has done one of these daily deals has never done them twice, why? Because every deal offerer (restaurant, beauty spa, dentist, tooth whitening formula company, discounted holiday) loses out and it has been proven a daily deal coupon doesn't mean you'll get a return customer because lets face it, most of the people buying these daily deal vouchers like bargains and your standard price offering is probably way out of their affordability league. I once considered a daily deals type site where the premise was there is a strictly limited number of deals driving up the demand and at the same time, not bankrupting the family owned hardware store because 800 people bought their $500 worth of tools for $120 voucher because they thought more vouchers would mean more return business. Sucks about the stock though, I'm sure every single employee of LivingSocial deserves that money, they had a good thing going. I feel sorry for the families of the employees who are about to lose their jobs. They say the economy is on the mend, the increasing number of failing business stories I read every week says otherwise...

damian2000 14y ago
If you're going to use a daily deals site, come into it not expecting a profit and look at it for what it is ... a form of cheap marketing. I know a couple of businesses that have used them and found it generated a decent amount of additional sales. Mind you that was about 2 years ago.
- chii 14y ago
  it's not cheap if youre making a loss on every deal and the number isn't capped. its a good channel if you manage it properly tho.

j45 14y ago

Whenever someone offers you equity or shares.... Try to remember how many times it ends up being worth something, and staying something. otoh, getting valuable mentorship like YC is probably worth paying for.

doktrin 14y ago

> But despite our Current Liabilities being high, they at least are not as frightening as Groupon's Merchant Payables gap, as Groupon pays out usually in 1/3rds (30 days, 60 days, then 90 days), while at LivingSocial, we usually pay 80% of the total daily deal's sales to a merchant within 10 days of the offer ending, and then we owe them the other 20% months later. So yes we owe local merchants a lot of money, more than our Cash, and these Merchant Payables are most of our Current Liabilities as PrivCo surmised, but I will point out thta at least it's not as as great a portion of our Current Liabilities as Groupon's. What's with the Groupon deflection spin? LS clearly screwed up here. Pointing fingers at Groupon as an even-worse-offender achieves literally nothing.

imjk 14y ago
I agree. You could even argue from a business perspective that Groupon's making a wiser business decision by using the time value of money more in its favor.

Wista 14y ago

This is an example of a flawed business model, copied (from Groupon, et al), then over-funded so that the economic viability of the Model does not surface as soon as it should. In the finance world these often called Ponzi schemes, just saying...

damian2000 14y ago

Anyone know how they are doing outside the US? Over here in Asutralia for example they seem to be selling plenty of vouchers. I know some businesses that use them often.

freshyill 14y ago
I was laid off in November. Last we heard, they were doing quite well in Asian countries, particularly in Korea. This is what they told us, anyway. They also told us last fall that profitability was right around the corner.

tyang 14y ago

This headline is misleading, because it implies the common stock was worth something at one point. :)

pmboyd 14y ago

The fact that investors are putting up the money means there is some hope to the business. Not every startup gets that ... People seem to really focus on the negative. Startups are known to be bimodal outcomes. Either you retire from them or your income is down a few years. If you don't believe in a specific startup, don't work for them. If you don't believe in any startup, go work somewhere else.

callmeed 14y ago

Out of curiosity: If LivingSocial files for bankruptcy and fails to pay merchants, are those merchants still required to honor any outstanding deal vouchers?

ericz 14y ago

Perhaps I'm missing something here -- people criticize group deal sites for taking too much of the money in a deal (50% of the revenue). The marginal cost for LivingSocial on this is 0... why aren't they making tons of money? Where has the near $1 billion dollars gone?

jsankey 14y ago
You're assuming it costs LivingSocial nothing to enlist a new business willing to offer a deal. I'm sure this is a huge cost for them, especially considering this is a "land grab" phase where there is fierce competition from other deal sites.
tessa_82 14y ago
Daily deal sites burn huge amounts of money on online advertising and a massive sales team. People talk about these companies as if they are tech yet there is such a huge people component that does not scale. Groupon at peak had over 7000 sales people which is insane!

planetjones 14y ago

Google must be relieved that they didn't end up 6 billion dollars out of pocket and holding the sinking ship that is Groupon. The marker is saturated, businesses have had enough of getting little in return and consumers are getting annoyed with their inboxes full of annoying offers.

clamattack 14y ago

Only tangentially related maybe, but I've noticed an increase in the 'scamminess' of a lot of daily deals lately. Stuff like a cottage for £70/weekend but if you read the small print there's a 'cleaning charge' of £250 - to give one recent example. I don't know if that perhaps hints at the desperateness of daily deal companies to get new business in running such promotions, but it certainly dampens any enthusiasm I have for checking these sites again in the future.

robryan 14y ago

The part where group deals fall down is the big margin that the sites are taking, this is the difference between a deal being a break even or loss leader and putting the business offering the deal in a big financial hole. These margins are required to pay for a large sales team to convince businesses that they need to run these deals. I think a more sustainable model is one closer to traditional affiliates marketing or self serve advertising. Where the deals site provides a platform that is largely self service and takes say a 5% cut rather than 50%. This does loose one of the original ideals of group deals, that there was only 1 for an area (or at least a small amount each day) so each business running a deal was able to get a ton of exposure.

nemesisj 14y ago

I think one thing to remember when joining a company, particularly one of the higher profile startups that raise huge sums of money is that values really matter. Not mission statement values, but the actions that are consistently taken on a daily basis. Is your startup or employer profitable? No? Then why are they spending money on nice offices and expensive dinners and so on? I can almost guarantee that LivingSocial could have done with less than the 800 million it raised had they valued frugality and breaking even more than being some giant media darling worth-a-billion company. Deficit spending can work longterm for governments, but not for companies or individuals. It's a real shame everyone got cleaned out, but they had to know this was going to happen at some point.

deleted 14y ago

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photorized 14y ago

The investors must have had one of those 75% off coupons. I honestly don't understand how these sites manage to raise any money at all, regardless of valuation.

jonnysilk 14y ago
In the early years of Groupon it was seen as coupons moving online to create a new business model that was going to drive retail. The sites had off the charts growth, huge revenue dollars that were growing just as fast and the land was up for grabs. Even Google got suckered into this when it tried to buy Groupon for billions in cash, I can see where the investors were coming from, well at least before 2011.

joeco 14y ago

Are there any corroborating reports on this? I can't find any. I'm calling BS.

wallawe 14y ago
And you are correct, sir.

mattetti 14y ago

Here is the indirect response of LivingSocial's CEO via a leaked memo reported by CNN: http://finance.fortune.cnn.com/2013/02/21/what-really-happened-at-livingsocial/ http://finance.fortune.cnn.com/2013/02/21/what-really-happen... It doesn't mean that most of the advices here aren't just that PrivCo might be making up stuff stories.

kamloops 14y ago

I value the people who would be your potential co-workers and the social impact your work makes over how much stock I'd get or the "20% time" I'm given to work on non-core projects. Startups do give you the opportunity to have a more hands-on role at the company considering the size of the engineering staff. Naturally (if you're driven and you're confident in your ideas and can work well with people), can make a bigger impact at a smaller company/startup than at some of the more established tech giants. I think experience you gain far outweighs the slim chance your 3000 shares of common stock will amount to anything. You can take that experience with you to a larger tech company.

joonix 14y ago

An email newsletter list was valued at $5 billion.