Groupon Raises $950 Million

Groupon, the daily deal startup, has closed its latest fundraising round at close to one billion dollars.

Stopping at just around $950 million, Groupon's most recent financing push is the largest amount of money ever raised by a startup. Silicon Valley heavyweights Kleiner Perkins Caufield & Byers, Accel Partners and Andreessen Horowitz were among the investors listed as having participated in the effort. The news follows hot on the heels of rumors that Groupon turned down a $6 billion dollar buyout offer from Google in December.

Groupon's short but spectacular rise since 2008 turned meteoric in 2010. In the past year alone, Groupon has expanded from 1 to 35 countries, growing their subscriber base by 2,500%, from 2 million to over 50 million. In another sign of their newfound mainstream triumph, they have purchased their first television ad spot--to air just before a little event called the Super Bowl.

By helping shoppers save while also letting local businesses advertise to a vast online community, Groupon seems to have tapped into the intersection of the internet's social connectivity and the corporate desire to get customers to spend their money. They are currently valued at $4.75 billion. Start-up imitators like LivingSocial, Groop Swoop and Scoop St have tried to cash in, as have social stalwarts like Facebook, with Places, and Foursquare, with Deals.

Groupon's near-billion dollar fundraising effort is just one of the rush of fundings happening recently. Alongside Goldman Sachs' much contested $450 million planned investment with Facebook there have been a slew of smaller monetary injections. Crowdsourced food news site Foodspotting, mobile credit payment service Square and Klout, a social media appraisal site, are just a few of the sites that have just closed their latest funding rounds--a clear indication that Silicon Valley investors still can't get enough of social and mobile startups.

(h/t TechCrunch)

Comments

[vivo]

12:46 PM on 01/12/2011

Groupon asks local merchants to deal with a low margin flash mob in an effort to drum up new full-paying customers. Unfortunately, the people who buy Groupon's tickets tend to be garden variety bargain hunters. After scoring a deep discount bargain hunters rarely return at full price, they only seek the next discount.

[lilylee86]

01:43 AM on 01/12/2011

It is awesome..
WinPST Share Outlook~~

[cogrep]

10:34 PM on 01/11/2011

What is Groupon going to do with this much money? They are already significantly ahead of the competition in terms of subscriber growth, marketshare, and geographic reach. It's amazing that a simple concept that did not even exist just a few years ago now has such demand that almost anyone can get in the deal a day market and make a run for a share of the pie (though a much smaller piece than what Groupon has hehe). There are literally hundreds of Groupon copycat / clone sites that exist. I started LocalDealSites.com as a guide to these daily deal sites and currently list over 130 Groupon-like daily deal websites... if you know of more, please send them to me via my site. http://www.localdealsites.com/

[ajwriter]

08:14 PM on 01/11/2011

Actually, it's a pretty clever marketing concept. Businesses are able to get their name out to a really wide audience without paying any upfront advertising or marketing costs. They do pay a large "fee" for people who come in (those who buy the deal), but those who buy the deal are virtually guaranteed to come in and at least give the business a try. (And if they don't come in, as another poster said, it's money for the business.) If the business does the right deal and takes care of the customers who come in, they will get more business.

That said, all this points about a bubble for Groupon are well made. Groupon has a lot of local competitors who are much more interested in seeing the local businesses do well from the deals than just making some money from them and moving on (as someone else pointed out Groupon is getting a reputation for). Groupon people are getting a reputation for being overly aggressive, and from the consumer side (having tried them), I'm not sure I believe they're completely honest about their incentives, because I've made referrals and had people tell me they bought deals because of it and signed up for Groupon because of it, but I never received the promised incentive.

This is a great concept, but I think it's gotten too big and it's not being implemented the very best it could be anymore.

[atila]

06:05 PM on 01/11/2011

Another bubble in the making.

[vivo]

01:49 PM on 01/11/2011

If you like to prepay for a service or product that could become useless due to expiration dates or other restrictions, then Groupon is for you !!

The "success" of Groupon is based on the m.0.r.o.n.s who buy a coupon and never use it.

[howitis]

02:20 PM on 01/11/2011

the success stems from the fact that they rake in 50% of the money from the deal plus credit card transaction fees. it doesn't matter to them if you redeem the coupon or not, since they've already profited. the businesses that you buy from prefer you not redeem so they can cut losses, especially if you weren't going to shop there again.

[vivo]

04:00 PM on 01/11/2011

My point is that Groupon would be far less successful if every single ticket* was redeemed because the loss in profit margin to the local merchant would be even greater.
The sweet spot to Groupon and the merchant is the unredeemed ticket*.

* The Groupon product is much more akin to "general admission tickets" than actual coupons.

[teabagflush]

01:04 PM on 01/11/2011

This is mindboggling. I recently signed up to receive their Groupon email offers. Out of perhaps 25 offers that they have sent, there was only one I might have used but decided not to.

If I am typical of their so-called subscriber base, what can they possibly be worth?

I would not loan them 2 cents. This is going to be another 'pet rock' sensation.

It will last about as long as a tissue in a tornado. Good luck, Investors !

[Sundialsvc4]

12:24 PM on 01/11/2011

If you've got $950 million burning a hole in your pocket, then please, by all means, Feel Free.

With that kind of money, you can saturate the advertising market and "instantly" make your chosen start-up "a household name." You can buy any number of people who will gush with enthusiasm. You can probably even buy a group of "sophisticated" investors who (according to you, anyway) will "clamor for the opportunity" to plunk their money down.

See me in two years. If your "next big thing" still exists at that time, I might invest in it. I'm not holding my breath.

[Charlie Ham]

11:37 AM on 01/11/2011

groupon is awesome, i buy something atleast once a month! a few weeks ago they had half off at nordstrom rack!!!

[Roshi98]

10:53 AM on 01/11/2011

Decent offerings if you want to try that expensive restaurant or yoga studio you've window-shopped, but from what I've heard Groupon is a terrible deal for vendors.

The discounts offered provide no payback for the significant overhead a business like a restaurant absorbs and there's no evidence whatsoever that there's any repeat business after the incentive has ended. In fact, a consortium of Groupon vendors has reported that Groupon customers often come into establishments and demand the same discount after the incentive has expired and leave if they don't get it.

This model is based on hot air and the bubble will eventually burst. Folks, if you want to support local businesses but can't afford to get as much as you would at big boxes or cheaper restaurants, just buy less and go out less often but do it locally. Stop trying to get the cheapest deal on stuff you don't need all the time anyway. It's better for you, better for your community, and better for the tax base that pays for schools, police, fire departments, and so on.

[psilocynic]

11:15 AM on 01/11/2011

I own a retail store and can attest to that. The way my margins are set, if I were to participate in a groupon deal I would be losing on average 15-25% on each item. For services, which are priced at 100% margin, it may be a good idea but groupon will eventually run out of people willing to participate because the return is just too small. To give you an idea of how this works, typically a product will be marked up 100% from wholesale which is a 50% margin. This is a fair mark up even though it may sound like it's a lot (coffee is marked up 300-400%). If you sell an item on groupon you immediately lose 50% of the retail price, or in other words, all of your profit. Then groupon takes a 30% cut of the sale as their commission. It's a bad deal for merchants, but for food service and other service vendors it has a return, albeit a very small one.

[Charlie Ham]

11:38 AM on 01/11/2011

great way to clear out some old inventories or spark some new interest!

[jaredbrain]

10:51 AM on 01/11/2011

I've never used these people, and never really heard of these guys outside of the stories about how they're worth billions of dollars. This is the first article i've seen that actually says what they do.

[TexanResistance]

10:06 AM on 01/11/2011

Groupon WILL fall, it's just a matter of when. Too many people are obtaining vouchers and can't use them, because they swamp out the merchants. Supposedly they lock their "merchants" into exclusivity agreements which bar them from using any other competing provider, even if a better deal is offered. Their quality of their offers have steadily declined over the months. This what happens when you run your sales operation from a central hub (Chicago).

I would have bought their stock if they IPOed -- a year ago, and doubled my money. But if they IPO now, just how much will that hold it's value?

There are many other providers. Many local media outlets offer their own sites now with tailored local deals, TV and even radio stations, I've taken advantage of mine. There are also other providers who seem to be doing the business better than Groupon, like LivingSocial, KGB deals, both of whom I've bought from. It's easy entry just by looking at the sheer numbers of providers.

[JasonMcl]

09:41 AM on 01/11/2011

Did this title really say "Like, a billion dollars!" or was I imagining that?

[psilocynic]

11:15 AM on 01/11/2011

Dude, like, totally, man.

[Trickery]

09:04 AM on 01/11/2011

Enjoy it while it last Groupon, because to be honest, these things never last.

[ZSV]

08:36 AM on 01/11/2011

I read once that once large investments like this were done back in the 90's the internet bubble burst. Since the companies (facebook groupon myspace etc) produce nothing (if you really think about it they make nothing) and are suddenly worth billions...a bubble ready to burst??

[Sundialsvc4]

12:30 PM on 01/11/2011

The actual "product" of nearly all of the dot-bombs was ... shares of their own stock. Specifically, stock OPTIONS, which were issued in advance to the "privileged few."

As we know, nearly all of those companies no longer exist at all.

From the very get-go, Groupon has appeared to me to be a ludicrous business proposition, and the extreme(!) hucksterism surrounding it only reaffirms that notion.

Bear in mind also that "Like, a Billion Dollars" is, in itself, a form of hucksterism. It's pretty much funny-money anyhow. We've seen exactly this kind of sales-pitching, nearly twenty years ago now.

Caveat. Emptor.