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Groupon going pear shaped

Iqbal V Gandham
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.

http://dealbook.nytimes.com/2011/10/17/the-missed-red-flags-on-groupon/

$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Omkar Joshi
Iqbal,

Reading with a lot interest...

A company which, for once, has a real business, for a real economy, creating real value for its customers (merchants) and consumers? Groupon is a great business model and it does bring real people through the door (as opposed to advertising which is just money thrown with the hope of getting someone through the door). We may see the occasional stories about unhappy merchants but there sure is a long 6-month(ish) wait list to get your name on Groupon!

Groupon's value is in its long list of subscribers, its merchant relationships (likely strained in many cases) and its hyper-local model with super-replication possibilities. But the management issues with accounting (gaffes) and money leaving the firm cannot and should not be a reflection on the business model. I am still a supporter of the group-buying model and Groupon pioneered it! I still believe that they will command a massive premium on listing :) 

The question is whether a Groupon could have been born on this side of the Atlantic? I doubt..

Cheers
Omkar

-- 
Omkar Joshi (< -- Click to See/Add My Contact Details)


On 18 October 2011 13:47, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Omar Miah
In reply to this post by Iqbal V Gandham
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly

>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said


Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Geoffrey McCaleb
In reply to this post by Iqbal V Gandham
They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey


On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly


>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said


Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

David-2
In reply to this post by Iqbal V Gandham

I love the analogy!  :D

David.

On Tue, Oct 18, 2011 at 2:37 PM, Geoffrey McCaleb <[hidden email]> wrote:


It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey



On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly


>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said


Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Iqbal V Gandham
In reply to this post by Iqbal V Gandham
I'll still wager a tenner that groupon becomes the webvan of this period

Iqbal

P.S At the rate inflation is going up £10 will buy you a loaf of bread :-)


From: Omar Miah <[hidden email]>
To: [hidden email]
Sent: Tuesday, 18 October 2011, 13:23
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly

>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said


Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Horatiu Mocian
In reply to this post by Iqbal V Gandham
Iqbal,

I have been watching Groupon for a while, and I think that it will be either the Webvan of this period, or the Amazon of this period. Unfortunately, I will have too agree with you that it will most likely be the former. I was afraid that a $25B IPO for Groupon would be the trigger for the Bubble 2.0 burst, but if they will IPO below $10B (or not at all), I will be less worried.

I think that the Groupon model in itself has value for business with high fixed costs, but I would put my money on LivingSocial as being the best company in the field in 2 years (they got a huge investment from Amazon - this should mean something). Groupon will be either bankrupt, or scaled down massively.

Horatiu
SociaLook (www.socialook.net)

On Tue, Oct 18, 2011 at 4:58 PM, Iqbal Gandham <[hidden email]> wrote:
I'll still wager a tenner that groupon becomes the webvan of this period

Iqbal

P.S At the rate inflation is going up £10 will buy you a loaf of bread :-)


From: Omar Miah <[hidden email]>
To: [hidden email]
Sent: Tuesday, 18 October 2011, 13:23
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly

>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said


Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Peter Cunningham
In reply to this post by Iqbal V Gandham








From:

Geoffrey McCaleb ;


To:

;


Subject:

Re: [entrepreneur-1056] Groupon going pear shaped


Sent:

Tue, Oct 18, 2011 1:37:18 PM










They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).


In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.


It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey



On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:

I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold


Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds




If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly





>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???




I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick




Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said





Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:






Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.





$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)




Fool, money easily parted, all I have to say.

Iqbal





P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also










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Re: Groupon going pear shaped

Peter Cunningham
In reply to this post by Iqbal V Gandham
Tried to send a response but my wifi went down so think you got a blank email!

Here's what I tried to write:

I hear that they have a terrible staff retention problem. I was told by a headhunter that people are getting out of Groupon by the 'bucket load'. Reasons being that the roles sound glamourous on paper but are not in reality. Also new employees are not getting options exercisable in the IPO.

I read that hotmail is to take action vs deals newsletters making it harder to get in the inbox and easier to unsubscribe as the main complaint they get from users is the deluge of deals newsletters. As mentioned they are burning cash on customer acquisition.

I think it all depends if they get to IPO before the taps are turned off. I remember in 1999-2000 that companies lucky enough to get to sell stock to the public before the IPO doors shut were able to buy their unfortunate competitors for peanuts. I would not like to think how Groupon would do if the IPO market was frozen for a year (Greek default anyone?)


From: Geoffrey McCaleb <[hidden email]>;
To: <[hidden email]>;
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
Sent: Tue, Oct 18, 2011 1:37:18 PM

They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey


On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly


>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said


Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Peter Cunningham
In reply to this post by Iqbal V Gandham
I heard that they have terrible staff retention problem. A recruiter told me 'people are leaving groupon by the bucketload' - the reasons being that the roles sound great on paper but turn out to be much less glamourous in reality and that new staff are not getting options for the IPO, so they are being told to work like crazy for others to gain.

The business model is as you say loss making, email inboxes are flooded with deals newsletters and hotmail recently announced measures to cut down on deals newsletters (they will make it harder to get in the inbox and easier to opt out) as apparently the majority of user complaints hotmail gets are now linked to deals newsletters.

The targeting is not that good - why do I get all these offers for leg waxing? I am hairy but as an old fashioned bloke I want to stay that way :) and the geographical targeting is flaky ( west London is a big area!).

Their success may depend on getting to IPO before taps get turned off. In 1999-2000 plenty of good businesses were acquired for peanuts by competitors who were lucky enough to have sold shares on the markets just before the doors shut. I don't fancy their chances if the IPO market was derailed for a year (Greek default anyone?)


From: Geoffrey McCaleb <[hidden email]>;
To: <[hidden email]>;
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
Sent: Tue, Oct 18, 2011 1:37:18 PM

They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey


On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly


>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said


Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Johannes T
In reply to this post by Iqbal V Gandham
Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.
 
I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.
 
Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?
 
J
 
 
 
Sent: Tuesday, October 18, 2011 3:37 PM
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey


On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold
 
Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds
 
If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly
 
 
>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???
 
I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying
 
I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick
 
Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said
 
 
Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi
 
Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Iqbal V Gandham
In reply to this post by Iqbal V Gandham
your wish my command

http://techcrunch.com/2011/06/02/the-groupon-ipo-who-owns-what/

I.


From: Johannes T <[hidden email]>
To: [hidden email]
Sent: Tuesday, 18 October 2011, 18:03
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.
 
I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.
 
Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?
 
J
 
 
 
Sent: Tuesday, October 18, 2011 3:37 PM
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey


On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold
 
Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds
 
If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly
 
 
>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???
 
I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying
 
I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick
 
Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said
 
 
Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi
 
Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.


$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

Fool, money easily parted, all I have to say.

Iqbal


P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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RE: Groupon going pear shaped

Johnathan Agnes
In reply to this post by Iqbal V Gandham

Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/

 

My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.

 

I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.

 

Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.

 

This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.

 

J

 

Johnathan Agnès


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Clerkenwell Workshops, Clerkenwell Close, London EC1R 0AT freephone: 0808 222 0088 web: www.upside-up.com

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From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.

 

I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.

 

Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?

 

J

 

 

 

Sent: Tuesday, October 18, 2011 3:37 PM

Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:

I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

 

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

 

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly

 

 

>> ask the merchants who do not give repeat business

Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

 

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

 

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

 

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said

 

 

Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:

Hi

 

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.

 

 

$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

 

Fool, money easily parted, all I have to say.

 

Iqbal

 

 

P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also





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Re: Groupon going pear shaped

Johannes T
In reply to this post by Iqbal V Gandham
Replies in-line - there is some more Press coverage by now on FT and WSJ
 
Sent: Tuesday, October 18, 2011 11:42 PM
Subject: RE: [entrepreneur-1056] Groupon going pear shaped
 

Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ 

Thanks for that, clarification, the only trouble I have now, is that, if $810m are used to pay out current investors (from the proceeds of the IPO) Groupon is only pocketing $90m, a sum they would burn in 2-3 months. It’s probably a first commitment from new investors, as the roads how (for public investors) only starts on Oct. 24. The $750m from the June prospectus is a number I see a lot in the Press, but we can possibly expect a number that is much higher then that.

My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.

20% savings in operating expenses could take a year, but reducing the customer acquisition expenses is somewhat instant (please correct me, if I have a major thinking error here), from the outset, I don’t see a necessity for growth other then wanting to be the biggest and here is where the IPO comes in, if it goes through and they raise a decent amount for their war chest, many European wanna B Groupons are gonna be happy Smile

I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.

Agree on the overheads – was quite surprised by their recruiting drive – growing from 37 employees as of June 30, 2009 to 9,625 employees as of June 30, 2011. , seems pretty excessive, but combined with their quest to constantly reinvent themselves it makes sense.

Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.

This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.

 

J

 

Johnathan Agnès


emlogo

 

Clerkenwell Workshops, Clerkenwell Close, London EC1R 0AT freephone: 0808 222 0088 web: www.upside-up.com

UpsideUp is registered in England & Wales, No. 6830564, at Suffolk House, George Street, Croydon CR0 0YN. This email and any attachments to it may be confidential and are intended solely for the use of the individual to whom it is addressed. Any views or opinions expressed are solely those of the author and do not necessarily represent those of UpsideUp Ltd. If you are not the intended recipient of this email, you must neither take any action based upon its contents, nor copy or show it to anyone. Please contact the sender if you believe you have received this email in error.

 

From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.

 

I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.

 

Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?

 

J

 

 

 

Sent: Tuesday, October 18, 2011 3:37 PM

Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:

I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

 

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

 

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly

 

 

>> ask the merchants who do not give repeat business

Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

 

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

 

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

 

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said

 

 

Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:

Hi

 

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.

 

 

$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

 

Fool, money easily parted, all I have to say.

 

Iqbal

 

 

P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also





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Re: Groupon going pear shaped

Salman Khan
In reply to this post by Iqbal V Gandham
I think Andrew Mason has got it all wrong. Groupon is already on the receiving end of poor customer feedback & employees... this for a startup thats two years old.

I actually think the winner will be Living Social, who will ride the massive marketing push of Groupon combined with Amazon's support & commitment.

Best wishes & dreams,

Salman Khan
Kingpin - CoutAllure Ltd


On 19 October 2011 12:00, Johannes T <[hidden email]> wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ
 
Sent: Tuesday, October 18, 2011 11:42 PM
Subject: RE: [entrepreneur-1056] Groupon going pear shaped
 

Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ 

Thanks for that, clarification, the only trouble I have now, is that, if $810m are used to pay out current investors (from the proceeds of the IPO) Groupon is only pocketing $90m, a sum they would burn in 2-3 months. It’s probably a first commitment from new investors, as the roads how (for public investors) only starts on Oct. 24. The $750m from the June prospectus is a number I see a lot in the Press, but we can possibly expect a number that is much higher then that.

My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.

20% savings in operating expenses could take a year, but reducing the customer acquisition expenses is somewhat instant (please correct me, if I have a major thinking error here), from the outset, I don’t see a necessity for growth other then wanting to be the biggest and here is where the IPO comes in, if it goes through and they raise a decent amount for their war chest, many European wanna B Groupons are gonna be happy Smile

I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.

Agree on the overheads – was quite surprised by their recruiting drive – growing from 37 employees as of June 30, 2009 to 9,625 employees as of June 30, 2011. , seems pretty excessive, but combined with their quest to constantly reinvent themselves it makes sense.

Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.

This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.

 

J

 

Johnathan Agnès


emlogo

 

Clerkenwell Workshops, Clerkenwell Close, London EC1R 0AT freephone: 0808 222 0088 web: www.upside-up.com

UpsideUp is registered in England & Wales, No. 6830564, at Suffolk House, George Street, Croydon CR0 0YN. This email and any attachments to it may be confidential and are intended solely for the use of the individual to whom it is addressed. Any views or opinions expressed are solely those of the author and do not necessarily represent those of UpsideUp Ltd. If you are not the intended recipient of this email, you must neither take any action based upon its contents, nor copy or show it to anyone. Please contact the sender if you believe you have received this email in error.

 

From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.

 

I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.

 

Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?

 

J

 

 

 

Sent: Tuesday, October 18, 2011 3:37 PM

Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:

I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

 

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

 

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly

 

 

>> ask the merchants who do not give repeat business

Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

 

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

 

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

 

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said

 

 

Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:

Hi

 

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.

 

 

$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

 

Fool, money easily parted, all I have to say.

 

Iqbal

 

 

P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also





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Re: Groupon going pear shaped

Mehdi Siami-2
In reply to this post by Iqbal V Gandham

On 19 Oct 2011, at 08:31, Salman Khan <[hidden email]> wrote:

I think Andrew Mason has got it all wrong. Groupon is already on the receiving end of poor customer feedback & employees... this for a startup thats two years old.

I actually think the winner will be Living Social, who will ride the massive marketing push of Groupon combined with Amazon's support & commitment.

Best wishes & dreams,

Salman Khan
Kingpin - CoutAllure Ltd


On 19 October 2011 12:00, Johannes T <[hidden email]> wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ
 
Sent: Tuesday, October 18, 2011 11:42 PM
Subject: RE: [entrepreneur-1056] Groupon going pear shaped
 

Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ 

Thanks for that, clarification, the only trouble I have now, is that, if $810m are used to pay out current investors (from the proceeds of the IPO) Groupon is only pocketing $90m, a sum they would burn in 2-3 months. It’s probably a first commitment from new investors, as the roads how (for public investors) only starts on Oct. 24. The $750m from the June prospectus is a number I see a lot in the Press, but we can possibly expect a number that is much higher then that.

My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.

20% savings in operating expenses could take a year, but reducing the customer acquisition expenses is somewhat instant (please correct me, if I have a major thinking error here), from the outset, I don’t see a necessity for growth other then wanting to be the biggest and here is where the IPO comes in, if it goes through and they raise a decent amount for their war chest, many European wanna B Groupons are gonna be happy <wlEmoticon-smile[1].png>

I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.

Agree on the overheads – was quite surprised by their recruiting drive – growing from 37 employees as of June 30, 2009 to 9,625 employees as of June 30, 2011. , seems pretty excessive, but combined with their quest to constantly reinvent themselves it makes sense.

Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.

This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.

 

J

 

Johnathan Agnès


<image001.gif>

 

Clerkenwell Workshops, Clerkenwell Close, London EC1R 0AT freephone: 0808 222 0088 web: www.upside-up.com

UpsideUp is registered in England & Wales, No. 6830564, at Suffolk House, George Street, Croydon CR0 0YN. This email and any attachments to it may be confidential and are intended solely for the use of the individual to whom it is addressed. Any views or opinions expressed are solely those of the author and do not necessarily represent those of UpsideUp Ltd. If you are not the intended recipient of this email, you must neither take any action based upon its contents, nor copy or show it to anyone. Please contact the sender if you believe you have received this email in error.

 

From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.

 

I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.

 

Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?

 

J

 

 

 

Sent: Tuesday, October 18, 2011 3:37 PM

Subject: Re: [entrepreneur-1056] Groupon going pear shaped

 

They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:

I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold

 

Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds

 

If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly

 

 

>> ask the merchants who do not give repeat business

Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???

 

I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying

 

I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick

 

Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said

 

 

Omar



On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:

Hi

 

Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.

 

 

$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)

 

Fool, money easily parted, all I have to say.

 

Iqbal

 

 

P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also





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Re: Groupon going pear shaped

Iqbal V Gandham
In reply to this post by Iqbal V Gandham
9000 people, whatever happened to lean 


From: Johannes T <[hidden email]>
To: [hidden email]
Sent: Wednesday, 19 October 2011, 7:00
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

Replies in-line - there is some more Press coverage by now on FT and WSJ
 
Sent: Tuesday, October 18, 2011 11:42 PM
Subject: RE: [entrepreneur-1056] Groupon going pear shaped
 
Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ 
Thanks for that, clarification, the only trouble I have now, is that, if $810m are used to pay out current investors (from the proceeds of the IPO) Groupon is only pocketing $90m, a sum they would burn in 2-3 months. It’s probably a first commitment from new investors, as the roads how (for public investors) only starts on Oct. 24. The $750m from the June prospectus is a number I see a lot in the Press, but we can possibly expect a number that is much higher then that.
My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.
20% savings in operating expenses could take a year, but reducing the customer acquisition expenses is somewhat instant (please correct me, if I have a major thinking error here), from the outset, I don’t see a necessity for growth other then wanting to be the biggest and here is where the IPO comes in, if it goes through and they raise a decent amount for their war chest, many European wanna B Groupons are gonna be happy Smile
I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.
Agree on the overheads – was quite surprised by their recruiting drive – growing from 37 employees as of June 30, 2009 to 9,625 employees as of June 30, 2011. , seems pretty excessive, but combined with their quest to constantly reinvent themselves it makes sense.
Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.
This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.
 
J
 
Johnathan Agnès

emlogo
 
Clerkenwell Workshops, Clerkenwell Close, London EC1R 0AT freephone: 0808 222 0088 web: www.upside-up.com

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From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.
 
I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.
 
Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?
 
J
 
 
 
Sent: Tuesday, October 18, 2011 3:37 PM
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold
 
Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds
 
If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly
 
 
>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???
 
I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying
 
I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick
 
Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said
 
 
Omar


On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi
 
Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.
 
 
$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)
 
Fool, money easily parted, all I have to say.
 
Iqbal
 
 
P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Iqbal V Gandham
In reply to this post by Iqbal V Gandham
Hi

I feel livingsocial will do well also, they will leverage the education that groupon has done. Groupon is stuck with group buying (name) even though they are trying to move into other elements. Flash sales, groupon buying is just sales at the end of the day. If you have these offers everyday, e.g if you have a flash sale everyday you no longer see the value in it, it is the same as the highstreet. They have sales every week, so customers just wait and never buy retail anymore.....eventually groupon is just another name for a discount store/poundshop :-)

Iqbal


From: Salman Khan <[hidden email]>
To: [hidden email]
Sent: Wednesday, 19 October 2011, 7:31
Subject: Re: [entrepreneur-1056] Groupon going pear shaped

I think Andrew Mason has got it all wrong. Groupon is already on the receiving end of poor customer feedback & employees... this for a startup thats two years old.

I actually think the winner will be Living Social, who will ride the massive marketing push of Groupon combined with Amazon's support & commitment.

Best wishes & dreams,

Salman Khan
Kingpin - CoutAllure Ltd

On 19 October 2011 12:00, Johannes T <[hidden email]> wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ
 
Sent: Tuesday, October 18, 2011 11:42 PM
Subject: RE: [entrepreneur-1056] Groupon going pear shaped
 
Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ 
Thanks for that, clarification, the only trouble I have now, is that, if $810m are used to pay out current investors (from the proceeds of the IPO) Groupon is only pocketing $90m, a sum they would burn in 2-3 months. It’s probably a first commitment from new investors, as the roads how (for public investors) only starts on Oct. 24. The $750m from the June prospectus is a number I see a lot in the Press, but we can possibly expect a number that is much higher then that.
My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.
20% savings in operating expenses could take a year, but reducing the customer acquisition expenses is somewhat instant (please correct me, if I have a major thinking error here), from the outset, I don’t see a necessity for growth other then wanting to be the biggest and here is where the IPO comes in, if it goes through and they raise a decent amount for their war chest, many European wanna B Groupons are gonna be happy Smile
I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.
Agree on the overheads – was quite surprised by their recruiting drive – growing from 37 employees as of June 30, 2009 to 9,625 employees as of June 30, 2011. , seems pretty excessive, but combined with their quest to constantly reinvent themselves it makes sense.
Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.
This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.
 
J
 
Johnathan Agnès

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UpsideUp is registered in England & Wales, No. 6830564, at Suffolk House, George Street, Croydon CR0 0YN. This email and any attachments to it may be confidential and are intended solely for the use of the individual to whom it is addressed. Any views or opinions expressed are solely those of the author and do not necessarily represent those of UpsideUp Ltd. If you are not the intended recipient of this email, you must neither take any action based upon its contents, nor copy or show it to anyone. Please contact the sender if you believe you have received this email in error.
 
From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.
 
I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.
 
Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?
 
J
 
 
 
Sent: Tuesday, October 18, 2011 3:37 PM
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold
 
Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds
 
If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly
 
 
>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???
 
I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying
 
I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick
 
Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said
 
 
Omar


On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi
 
Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.
 
 
$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)
 
Fool, money easily parted, all I have to say.
 
Iqbal
 
 
P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Geoffrey McCaleb
In reply to this post by Iqbal V Gandham
+1 Iqbal. When I had my tonsils out as a kid, I got to eat ice cream every day. Day one, amazing. Day two, cool. Day three, getting old. Day four, no Mom, I really don't want ice cream.

I think this is one of those situations where the first mover advantage is a detriment. Others can sit on the sidelines and watch Groupon make the (expensive) mistakes, then step in and re-craft/pivot their strategy accordingly. imho the biggest problem with the Groupon model is that it is still geared to one-off experiences. Look at their homepage right now, Brittany Spears tickets are mixed with offers for teeth whitening and carpet cleaning. Do I need to clean my carpets every week? No.

I do know people who have tried pilates and martial arts groupons, yet once the groupon is finished their relationship was with the business. When they return to Groupon, they get the same generic/random stuff. What is going to motivate me to buy a groupon every week? Doing stuff or experiencing "things" that I need frequently, with an occasional reach into the random ether. So, instead of just onboarding any business, they need some semblance of curation. Spray and pray is not a good business (or product) model.

Geoffrey


On Wed, Oct 19, 2011 at 1:38 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

I feel livingsocial will do well also, they will leverage the education that groupon has done. Groupon is stuck with group buying (name) even though they are trying to move into other elements. Flash sales, groupon buying is just sales at the end of the day. If you have these offers everyday, e.g if you have a flash sale everyday you no longer see the value in it, it is the same as the highstreet. They have sales every week, so customers just wait and never buy retail anymore.....eventually groupon is just another name for a discount store/poundshop :-)

Iqbal


From: Salman Khan <[hidden email]>
To: [hidden email]
Sent: Wednesday, 19 October 2011, 7:31

Subject: Re: [entrepreneur-1056] Groupon going pear shaped

I think Andrew Mason has got it all wrong. Groupon is already on the receiving end of poor customer feedback & employees... this for a startup thats two years old.

I actually think the winner will be Living Social, who will ride the massive marketing push of Groupon combined with Amazon's support & commitment.

Best wishes & dreams,

Salman Khan
Kingpin - CoutAllure Ltd

On 19 October 2011 12:00, Johannes T <[hidden email]> wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ
 
Sent: Tuesday, October 18, 2011 11:42 PM
Subject: RE: [entrepreneur-1056] Groupon going pear shaped
 
Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ 
Thanks for that, clarification, the only trouble I have now, is that, if $810m are used to pay out current investors (from the proceeds of the IPO) Groupon is only pocketing $90m, a sum they would burn in 2-3 months. It’s probably a first commitment from new investors, as the roads how (for public investors) only starts on Oct. 24. The $750m from the June prospectus is a number I see a lot in the Press, but we can possibly expect a number that is much higher then that.
My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.
20% savings in operating expenses could take a year, but reducing the customer acquisition expenses is somewhat instant (please correct me, if I have a major thinking error here), from the outset, I don’t see a necessity for growth other then wanting to be the biggest and here is where the IPO comes in, if it goes through and they raise a decent amount for their war chest, many European wanna B Groupons are gonna be happy Smile
I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.
Agree on the overheads – was quite surprised by their recruiting drive – growing from 37 employees as of June 30, 2009 to 9,625 employees as of June 30, 2011. , seems pretty excessive, but combined with their quest to constantly reinvent themselves it makes sense.
Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.
This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.
 
J
 
Johnathan Agnès

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Clerkenwell Workshops, Clerkenwell Close, London EC1R 0AT freephone: 0808 222 0088 web: www.upside-up.com

UpsideUp is registered in England & Wales, No. 6830564, at Suffolk House, George Street, Croydon CR0 0YN. This email and any attachments to it may be confidential and are intended solely for the use of the individual to whom it is addressed. Any views or opinions expressed are solely those of the author and do not necessarily represent those of UpsideUp Ltd. If you are not the intended recipient of this email, you must neither take any action based upon its contents, nor copy or show it to anyone. Please contact the sender if you believe you have received this email in error.
 
From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.
 
I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.
 
Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?
 
J
 
 
 
Sent: Tuesday, October 18, 2011 3:37 PM
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold
 
Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds
 
If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly
 
 
>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???
 
I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying
 
I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick
 
Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said
 
 
Omar


On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi
 
Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.
 
 
$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)
 
Fool, money easily parted, all I have to say.
 
Iqbal
 
 
P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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Re: Groupon going pear shaped

Johannes T
In reply to this post by Iqbal V Gandham
Recent news from the LATimes reliing on an unidentified source suggests groupon is downsizing the amount it's IPOing to $500m. No comments from Groupon's side, all is happening behind closed dors.

http://www.latimes.com/business/la-fiw-groupon-20111020,0,6572991.story

by the way, my only dealings with groupon was for a Garra Rufa Fish Pedicure (£8 instead of £20) - very nice but you can bet that's one-off


On 19 October 2011 14:58, Geoffrey McCaleb <[hidden email]> wrote:
+1 Iqbal. When I had my tonsils out as a kid, I got to eat ice cream every day. Day one, amazing. Day two, cool. Day three, getting old. Day four, no Mom, I really don't want ice cream.

I think this is one of those situations where the first mover advantage is a detriment. Others can sit on the sidelines and watch Groupon make the (expensive) mistakes, then step in and re-craft/pivot their strategy accordingly. imho the biggest problem with the Groupon model is that it is still geared to one-off experiences. Look at their homepage right now, Brittany Spears tickets are mixed with offers for teeth whitening and carpet cleaning. Do I need to clean my carpets every week? No.

I do know people who have tried pilates and martial arts groupons, yet once the groupon is finished their relationship was with the business. When they return to Groupon, they get the same generic/random stuff. What is going to motivate me to buy a groupon every week? Doing stuff or experiencing "things" that I need frequently, with an occasional reach into the random ether. So, instead of just onboarding any business, they need some semblance of curation. Spray and pray is not a good business (or product) model.

Geoffrey



On Wed, Oct 19, 2011 at 1:38 PM, Iqbal Gandham <[hidden email]> wrote:
Hi

I feel livingsocial will do well also, they will leverage the education that groupon has done. Groupon is stuck with group buying (name) even though they are trying to move into other elements. Flash sales, groupon buying is just sales at the end of the day. If you have these offers everyday, e.g if you have a flash sale everyday you no longer see the value in it, it is the same as the highstreet. They have sales every week, so customers just wait and never buy retail anymore.....eventually groupon is just another name for a discount store/poundshop :-)

Iqbal


From: Salman Khan <[hidden email]>
To: [hidden email]
Sent: Wednesday, 19 October 2011, 7:31

Subject: Re: [entrepreneur-1056] Groupon going pear shaped

I think Andrew Mason has got it all wrong. Groupon is already on the receiving end of poor customer feedback & employees... this for a startup thats two years old.

I actually think the winner will be Living Social, who will ride the massive marketing push of Groupon combined with Amazon's support & commitment.

Best wishes & dreams,

Salman Khan
Kingpin - CoutAllure Ltd

On 19 October 2011 12:00, Johannes T <[hidden email]> wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ
 
Sent: Tuesday, October 18, 2011 11:42 PM
Subject: RE: [entrepreneur-1056] Groupon going pear shaped
 
Not an $810m private placement Johannes, an $810m partial-exit by the founders and early investors! https://allthingsd.com/20110602/where-did-groupons-billion-dollars-go/ 
Thanks for that, clarification, the only trouble I have now, is that, if $810m are used to pay out current investors (from the proceeds of the IPO) Groupon is only pocketing $90m, a sum they would burn in 2-3 months. It’s probably a first commitment from new investors, as the roads how (for public investors) only starts on Oct. 24. The $750m from the June prospectus is a number I see a lot in the Press, but we can possibly expect a number that is much higher then that.
My gut says that Groupon will need refinancing on degrading terms to survive long enough to milk the opportunity that their mailing list represents. But... sketchy analysis of their S-1 (http://sec.gov/Archives/edgar/data/1490281/000104746911008207/a2205238zs-1a.htm#dm79801_selected_consolidated_financial_and_other_data) says that if they could peg back their operating expenses by 20%and grow their revenues by 20% they’d make $200m dollars annually and maybe be worth $6bn at a profit/earnings ratio of 30 (which assumes people still believe they have very positive growth prospects). If you assume that it would take a full year from the point they last reported to do that turnaround, they need ~$250m to reach profitability, not much more than the cash they reportedly had to hand. We already know that the founders/early backers have $810m in their pockets, so if they believe in the model, they don’t even need to IPO they could just plough some money back in (although then they’d be on the hook to their bankers for advisory fees for the abortive sale, which could be huge). But, they have people like DST on board who would no doubt double-down (and drive a very hard bargain if they know it’s life-line money). And the likes of Morgan Stanley would probably support their equity commitment with debt. And then in 12 months they could be raising $4bn at a $6bn valuation, which would disappoint (hurt, even) the last round of investors who got in at a reported $4.5bn valuation, but be a great outcome for anyone who got involved at the outset or in earlier rounds.
20% savings in operating expenses could take a year, but reducing the customer acquisition expenses is somewhat instant (please correct me, if I have a major thinking error here), from the outset, I don’t see a necessity for growth other then wanting to be the biggest and here is where the IPO comes in, if it goes through and they raise a decent amount for their war chest, many European wanna B Groupons are gonna be happy Smile
I think the only way that my gut could be right is if the numbers disguise cash-flow requirements that they can’t sustain and a need for substantial new money from new investors, which spooked capital markets would only be willing to provide on a conservative valuation. Particularly if the business model is running out of growth headroom and there’s less scope to collapse costs and milk existing customers than investors would like. Groupon has substantial overheads compared to a typical tech company meriting a p/e ratio of 30, and possibly less scope for growth, so if you said they only merit a p/e ratio of 20 but the earnings I described can be achieved, then the next major round is a down round at $4bn or less, probably dressed up as another private placing at $5bn for appearances’ sake, and that represents a nightmare, PR and financially speaking, but one they can probably survive. If they can’t achieve those earnings, then they’re going to struggle, because further funding is going to come at a high price and an unattractive valuation, and their staff and backers would be demoralised by the collapse in value to something like 10% of the biggest figures ever spoken about seriously by analysts, making it feel like a sinking ship and a tainted brand. Only a fire-sale to a behemoth is likely to sustain them at any scale in that scenario.
Agree on the overheads – was quite surprised by their recruiting drive – growing from 37 employees as of June 30, 2009 to 9,625 employees as of June 30, 2011. , seems pretty excessive, but combined with their quest to constantly reinvent themselves it makes sense.
Even under those circumstances I don’t think Groupon would deserve the webvan 2.0 moniker. Webvan never had a hope of doing  $1bn in annual revenues like Groupon will have done this year, particularly not in multiple markets, and webvan never had a realistic hope of justifying start-up costs that dwarfed their annual revenues more than 10:1. I think Groupon could simply be felled by its own hubris. If the founders had left half of the $810m they took on the table at the last round, and if they hadn’t used unconventional accounting for their original S-1, and if they had targeted breakeven two quarters sooner, they would probably have been looking at a comfortable linkedin-scale exit this autumn, achieved in less than half the time it took Reid Hoffman. Still, if I was at the helm of the fastest growing enterprise in history I think I would have started believing my own press too, so you can see why they went like gangbusters regardless.
This one’s a stream of conscious outpouring, so if there’s a really awful factor-of-10 error in my analysis you’re all going to have to forgive me – no time to review my mental arithmetic I’m afraid, and I only looked at the S-1 for a couple of minutes.
 
J
 
Johnathan Agnès

emlogo
 
Clerkenwell Workshops, Clerkenwell Close, London EC1R 0AT freephone: 0808 222 0088 web: www.upside-up.com

UpsideUp is registered in England & Wales, No. 6830564, at Suffolk House, George Street, Croydon CR0 0YN. This email and any attachments to it may be confidential and are intended solely for the use of the individual to whom it is addressed. Any views or opinions expressed are solely those of the author and do not necessarily represent those of UpsideUp Ltd. If you are not the intended recipient of this email, you must neither take any action based upon its contents, nor copy or show it to anyone. Please contact the sender if you believe you have received this email in error.
 
From: [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
To: [hidden email]
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
Doing an IPO when wall street is occupied and even sovereign bonds crumble is risky at best – excuse me for using a war metaphor in these times, but it seems to be a “Flucht nach Vorne” type of manoeuvre where attack is the best defence strategy.
 
I agree with Geoffrey that their Business Model sucks, but not because it is badly designed – It’s probably the best, we have seen in this century, beautifully simple and adding value for the vendors and the final customer. But it’s simplicity and possibility to scale, i.e. replicate locally, is Groupon’s Achilles heel (another one, ouch). They need to grow quickly and at all(!) cost to keep their momentum and stay the largest group deal business. That is why they chose to pay 27$ for acquiring a customer who only spends 17$, they will lower the customer acquisition premium, once they have a high enough share.
 
Would be interesting to get a better idea on the deal - it was an IPO of $900m and a private placement of $810m? for what stake? and who are the investors? There seems to be little info in the press, maybe it was just a so much needed cash injection to continue operating for the next few months without raising too many eyebrows?
 
J
 
 
 
Sent: Tuesday, October 18, 2011 3:37 PM
Subject: Re: [entrepreneur-1056] Groupon going pear shaped
 
They are in a terrible position to turn things around. Yes they have many paying customers, and yes in some markets the merchant churn is not so bad, but ultimately Groupon is still paying for growth. They are spending more money to acquire customers than those customers are spending on groupons. I can't remember the numbers off the top of my head, but it costs them around $24 to acquire a single customer, and that customer spends on average around $17. They are losing money on the deal already (this of course does not take into account the costs of merchant acquisition).

In order for Groupon to be scalable, the acquisition costs have got to be lower, or they have to do something to increase the number of purchases made by a customer. If they had a controlled burn/go to market strategy, they could very well pull it off. But at the scale they are operating at, it would probably take another year to just get to break even point, let alone be cash flow positive.

It's ironic, the more customers Groupon adds, the faster they run out of money. Like gunning a Delorian towards a cliff - will the flux capicitor kick in on time to save them?

Geoffrey

On Tue, Oct 18, 2011 at 2:23 PM, Omar Miah <[hidden email]> wrote:
I disagree. I think Groupon is in a fantastic position to turn things around - simply considering the number of subscribed paying members it has - this is worth it's weight in gold
 
Yes: maybe the signs are they are heading for big failure. Let's all hope this doesn't happen. Groupon failing would send shockwaves around the internet world and the effects will be felt by all trying to raise funds
 
If they use some of the money to employ clever people who can think of innovative ways to move the company in the right direction, they should be OK. Judging by the quality of emails I receive from them, I don't think I'll hold my breath on that happening quickly
 
 
>> ask the merchants who do not give repeat business
Maybe it's groupon's faulty partially. It's also the fault of the merchants themselves. Groupon's deal with them is pretty clear.If they fail to have a plan and strategy to maximise the exposure they get as a result of partnering, then that's their fault. If they trade at a loss and get nothing out like more business because of the exposure - who is to blame?? Is it Groupon? Or is it the business itself - maybe they had a rubbish product or service - maybe the customer care sucked???
 
I use Groupon. The amount of *really* poor websites for the partnering merchants is worrying
 
I plan to use Groupon! I certainly won't be selling at a loss + will have plans to cross promote what is on offer - the moment a potential customer lands on my website from Groupon, they'll see a well designed, well thought out website that has an enticing offer that is not a gimick
 
Groupon gives a window of opportunity to advertise to a massive audience in a way that would be hard to achieve any other way without considerable cost. Just read Omkar's reply - I completely agree with everything said
 
 
Omar


On Tue, Oct 18, 2011 at 1:47 PM, Iqbal Gandham <[hidden email]> wrote:
Hi
 
Groupon raised $900+ mn and $810mn went to investors and employees. Where do you find investors like this, can someone please show me directions. It is and was obvious to anyone that groupon business model was not good, ask the merchants who do not give repeat business, which is why groupon had to scale very fast, and move into ever newer territories.
 
 
$225 million in bank and lost $100+ mn last quarter...me thinks time running out (although chairman too 300mn + from investors)
 
Fool, money easily parted, all I have to say.
 
Iqbal
 
 
P.S America does this do well, that money will get re-invested into new startups, and add to the economy, so I guess not all bad. But when valley is compared to London, they need to highlight the massive failures also




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