Update: Groupon CEO says the company has, in effect, been around longer than the official 17 months, so liquidity was something of an issue for early employees, and, in his case, taking the personal money problem off his mind will enable him to focus--see full comment after the original post.
Social commerce service Groupon has raised a gargantuan $135 million round led by Digital Sky Technologies, the same Russian investment firm that poured similar sums into Facebook and Zynga. Battery Ventures also participated in the round.
Most of the money will be used to buy back equity from employees and early investors, as was the case with DST’s Facebook and Zynga investments. The rest will go to fuel business growth. An interesting difference between this and previous DST investments is that Groupon has only been around for a year. In the case of Facebook and Zynga, many shareholders had expected the company to be acquired or go public within a couple years. When that didn’t happen, they were eager to cash in. By mid 2008, 4 years after the company was founded it became well known that many Facebook employees were selling their stock on the secondary market.
So why does a company founded just 17 months ago suddenly need to give its employees liquidity? Groupon didn’t respond immediately for comment.
One possible explanation is that Groupon can now foresee a longer runway to IPO, and is anticipating pressure later on. Washington is on a regulation binge following the credit crash, and if founders can wait until the capital is more business friendly, and Wall Street is more stable, they should. Back in May when Facebook took the DST infusion, it seemed like a case of “crap, we can’t let our valuation be determined by the secondary market, we need to do something fast.” But the DST-style investment has now been repeated several times. After Facebook came Zynga, then in January, Elevation Partners offered to buy back Yelp employee shares. Four makes a trend.
Groupon is quickly becoming one of the hottest venture-backed startups. This round is rumored to value the company at $1.35 billion.
The company uses social tools to attract many buyers for a given product and uses its collective buying power to get low prices. If it reaches the number of buyers it needs for a deal (often thousands of people), Groupon collects a big fee from the business that gets the sale, and distributes coupons to the buyers for the discount. The company says it has saved comsumers over $150 million.
Based in Chicago, Groupon currently has about 90 employees.
Update: Groupon CEO Andrew Mason responded to an email question about the buyback:
[...]It makes sense for investors to take the personal money problem off the CEO's mind. The question remains why this needs to be done via monster investments from DST instead of an IPO. This year is supposed to mark a comeback in the tech IPO market, but it seems the best candidates are Wall Street shy. Stay tuned for another post on this soon.
First, a couple things to clarify:
* I started Groupon as a site called The Point back in January 2007 - Groupon was a side project we started in November 2008. So while Groupon is only 17 months old, we've been at this for over three years now.
* Our institutional investors (NEA and Accel) chose not to sell stock - just founders and some early employees were given the option.
That said, I think something like this is a personal choice that depends on the goals of the founders. My goal with Groupon has always been to create an awesome product, not to make gobs of money. I look at money as a binary problem to solve - you either have enough, or you don't. We've had a tremendous amount of interest from great investors who were more than willing to permanently solve my binary money problem, which struck me as a huge win - one less thing to distract me from working on Groupon.