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

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

John Gaines
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

phil gainley
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...

On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
[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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Omkar Joshi
In reply to this post by John Gaines
Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

phil gainley
In reply to this post by John Gaines
I wasnt groupon bashing, I am interested to see how many hardcore groupon people there would be because there must be quite a few

Thanks

Phil

On Thu, Oct 20, 2011 at 10:03 AM, Omkar Joshi <[hidden email]> wrote:
Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Omkar Joshi
In reply to this post by John Gaines
Sorry Phil - not aimed at you. It just appeared to me that people were very critical of their business model and were prepared to write their obituary!

To be honest, I am awestruck with their growth and the fantastic execution on their model. All said and done, Groupon was in over 150 local markets (not to be mistaken for countries) at the end of the 2nd year since its launch and had a subscriber list of over 35 million then! That is incredible..

Its one thing to say that they had to grow quickly so they raised the money but its quite another to actually amass that growth in such a short space of time. That too a business model that involves customer acquisition, merchant acquisition, gaining credibility and real business $$$ flowing all over the space. I doubt there was ever another business that has had so much money creation in such a short period of time in the past - not even facebook or twitter I'm afraid. And honestly, we are complaining about the cost of customer acquisition??? Perhaps people should try comparing cost of customer acquisition for telecoms vs spending - the ratio is not even close to what we see here but its the lifetime value of the customer in the system (which no one knows for Groupon because its just too young in its lifecycle).

I just think that they deserve credit for what they've achieved and yes I will definitely buy their shares - perhaps even ahead of a fb! Facebook is awesome too but even they are almost 8 years old..

Cheers
Omkar


On 20 October 2011 10:11, phil gainley <[hidden email]> wrote:
I wasnt groupon bashing, I am interested to see how many hardcore groupon people there would be because there must be quite a few

Thanks

Phil


On Thu, Oct 20, 2011 at 10:03 AM, Omkar Joshi <[hidden email]> wrote:
Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

phil gainley
In reply to this post by John Gaines
No problem

If I did think what I was doing 3 years ago, it was seeing groupon growing, I saw a deal I liked, then I called up directly and negotiated a cheaper deal ;-)  and I also thought how many UK companies could only dream of raising huge amounts for customer acquisitions, also I was getting ready for a buyout that happened a few months after, what was anyone else doing 3 years ago?

Phil

On Thu, Oct 20, 2011 at 10:36 AM, Omkar Joshi <[hidden email]> wrote:
Sorry Phil - not aimed at you. It just appeared to me that people were very critical of their business model and were prepared to write their obituary!

To be honest, I am awestruck with their growth and the fantastic execution on their model. All said and done, Groupon was in over 150 local markets (not to be mistaken for countries) at the end of the 2nd year since its launch and had a subscriber list of over 35 million then! That is incredible..

Its one thing to say that they had to grow quickly so they raised the money but its quite another to actually amass that growth in such a short space of time. That too a business model that involves customer acquisition, merchant acquisition, gaining credibility and real business $$$ flowing all over the space. I doubt there was ever another business that has had so much money creation in such a short period of time in the past - not even facebook or twitter I'm afraid. And honestly, we are complaining about the cost of customer acquisition??? Perhaps people should try comparing cost of customer acquisition for telecoms vs spending - the ratio is not even close to what we see here but its the lifetime value of the customer in the system (which no one knows for Groupon because its just too young in its lifecycle).

I just think that they deserve credit for what they've achieved and yes I will definitely buy their shares - perhaps even ahead of a fb! Facebook is awesome too but even they are almost 8 years old..

Cheers
Omkar


On 20 October 2011 10:11, phil gainley <[hidden email]> wrote:
I wasnt groupon bashing, I am interested to see how many hardcore groupon people there would be because there must be quite a few

Thanks

Phil


On Thu, Oct 20, 2011 at 10:03 AM, Omkar Joshi <[hidden email]> wrote:
Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Larry-6
In reply to this post by John Gaines
Groupon is really a new kind of company model.
  1. Internet 1.0  : you publish things and people look and sometimes buy and pay, and you take ads and cuts, 
  2. Internet 2.0 : you propose a system and some people publish and other look and you take ads and cuts, 
  3. Internet 2.5 : you organize sellers and buyers at a distance ... and you take cuts, 
  4. Internet 3.0 : you recruit & organize at a distance, deals with merchants, local salespeople and Grouponians : possibly, all brick and mortar or internet merchants can pay you to build a deal, everywhere worldwide, and get access to YOUR Grouponians, possibly up to 7 billion of them currently, (even me could sometimes run for something really special),  
Groupon is a mix of everything, including Tupperware and Indian Herbs pyramid selling via dreamers-believers who work several moves on their own time and capital. The "beauty" is the use of the Internet to recruit LOCALLY much more quickly much more widely.

The idea of ALSO raising money at a distance,  is therefore logical :-) Bravo Phil ! 

The jury is still out to tell whether the [Groupon]   trade mark will survive (remember some recent skyrocking companies which crashed) 
all their negative buzz ? and whether a net margin will be possible when the extraordinary rebates will be adjusted to long term and recurring promotional activities ? 

May be they can rake  every merchant on earth, at least once ? 
Apple is still raking shareholders (no dividends but $80 billion in cash), Operators who pay  $650 for the right to sell iPxyz $200 or less, Developers (1000 winning at the lottery and 300 000  working hard for nuts) and finally deliver some value to customers-believers....

I wonder how $80 billion idle cash and 25% net profit and Chinese sweating workers can be termed cool by the 4 million people who bought the ordinary 4S in a week end ? 

I would fear a shock-crash very soon. Already, young people are flocking Android and run away from the phone used by  mom and dad and their "old" friends.  If the margin decrease, then the share plunges, that is the beauty of stocks, it amplifies everything, both ways.
  
Anyhow, Internet 3.0 à la Groupon, is a really strong idea: recruit and pay-deliver local furnishers, partners, managers & collaborators and customers at a distance ... 

Groupon will not be the last to try and succeed. Earth is small now.


Laurent Guyot-Sionnest
+33(0) 6 74 19 91 33 
Chief Tiki Officer, Board Member
Tiki’labs sas  http://www.tikimee.com/fr/list.html   



 



On Thu, Oct 20, 2011 at 11:11 AM, phil gainley <[hidden email]> wrote:
I wasnt groupon bashing, I am interested to see how many hardcore groupon people there would be because there must be quite a few

Thanks

Phil


On Thu, Oct 20, 2011 at 10:03 AM, Omkar Joshi <[hidden email]> wrote:
Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
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[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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Iqbal V Gandham
In reply to this post by John Gaines
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.

Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again

Iqbal


From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
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[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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Omkar Joshi
In reply to this post by John Gaines
Iqbal

I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?

About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)

Cheers
Omkar


On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.

Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again

Iqbal


From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web:www.upside-up.com

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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Steve Karmeinsky
In reply to this post by John Gaines
On Thu, Oct 20, 2011 at 06:38:00AM -0400, Iqbal Gandham wrote:

>    Omkar we are talking about a company which raised almost $1bn and then
>    gave it to investors and employees. That is not good in any language.
>    Also a company which said no to $6bn from google, hence either they
>    believed their own hype or missed a trick. I feel Google will still buy
>    them but at around $2bn mark, IPO is difficult, unless Facebook starts
>    the ball rolling and gets everyone excited about tech again
>    Groupon's side, all is happening behind closed dors.

Rumour has it Google walked away from the original deal.

Steve

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

Geoffrey McCaleb
In reply to this post by John Gaines
Drifting back to an earlier point: is it fair that we are critically analyzing their model? Or is the Groupon model the new Rock n Roll - some new fangled thang that annoys the Tommy Dorsey generation.

Well, we've mentioned it before, but lets look at Webvan. One of the biggest reasons Webvan failed was because they had to replicate an existing infrastructure (grocery stores), roll out an equally expensive delivery infrastructure, all the while competing in an historically low-margin business. They did have several plusses on their side though, inventory costs were known and plentiful - coke would continue to sell them coke at certain costs assuming they bought enough of it. Secondly, while customer acquisition may be expensive (ok, really expensive), it was true that once people ordered with them they would use the service again and tell their friends. So in theory, once they entered a market, acquisition costs over time would have probably decreased.

Now, contrast that with Groupon. High margin business (ding), but uncertain supply chain (bad), and high acquisition costs (bad). I don't know off the top of my head if such data exists, but if Groupon users consistently bought 1-2 groupons a month, I'm sure we would all be drooling to get in on the IPO. But they don't. But to make matters worse, not only are they spending a fortune to acquire new customers, their supply chain is chaotic and random. Even merchants that like using Groupon, only do them once or twice a year (or every other quarter) http://techcrunch.com/2011/06/18/ribman-groupon-bashing/

So I'll say it again: it is impressive the number of users and revenue they have acquired, but I can't see how a business that is growing but losing around $100M a quarter can be seen as a succesful venture. Look at Amazon. Circa 2000 they were spending a lot of money building their infrastructure and adding more and more products to their portfolio. Despite record revenues, they were still were not profitable.

http://www.businessweek.com/2000/00_28/b3689001.htm

Pull quote: Some investors are wondering if the e-tailer will ever turn a profit

The difference? Barriers to entry. Amazon may have been seen as vulerable by Wall St, but they had products to sell, an infrastructure to sell them, and customers to sell them to. To compete against them means having to replicate all three. Groupon? They do not have a stable or committed supply chain, and they have occasional customers that are more interested in price than the brand.

Which would you rather compete against if you had a few billion?

Geoffrey


On Thu, Oct 20, 2011 at 12:09 PM, Omkar Joshi <[hidden email]> wrote:
Iqbal

I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?

About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)

Cheers
Omkar


On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.

Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again

Iqbal


From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

Guys,

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

Cheers
Omkar


On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...


On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web:www.upside-up.com

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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Brian Milnes
In reply to this post by John Gaines

From the Economist (following where OC leads…)

The economics of Groupon: The dismal scoop on Groupon

 

 

From: [hidden email] [mailto:[hidden email]] On Behalf Of Geoffrey McCaleb
Sent: 20 October 2011 13:48
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

 

Drifting back to an earlier point: is it fair that we are critically analyzing their model? Or is the Groupon model the new Rock n Roll - some new fangled thang that annoys the Tommy Dorsey generation.

Well, we've mentioned it before, but lets look at Webvan. One of the biggest reasons Webvan failed was because they had to replicate an existing infrastructure (grocery stores), roll out an equally expensive delivery infrastructure, all the while competing in an historically low-margin business. They did have several plusses on their side though, inventory costs were known and plentiful - coke would continue to sell them coke at certain costs assuming they bought enough of it. Secondly, while customer acquisition may be expensive (ok, really expensive), it was true that once people ordered with them they would use the service again and tell their friends. So in theory, once they entered a market, acquisition costs over time would have probably decreased.

Now, contrast that with Groupon. High margin business (ding), but uncertain supply chain (bad), and high acquisition costs (bad). I don't know off the top of my head if such data exists, but if Groupon users consistently bought 1-2 groupons a month, I'm sure we would all be drooling to get in on the IPO. But they don't. But to make matters worse, not only are they spending a fortune to acquire new customers, their supply chain is chaotic and random. Even merchants that like using Groupon, only do them once or twice a year (or every other quarter) http://techcrunch.com/2011/06/18/ribman-groupon-bashing/

So I'll say it again: it is impressive the number of users and revenue they have acquired, but I can't see how a business that is growing but losing around $100M a quarter can be seen as a succesful venture. Look at Amazon. Circa 2000 they were spending a lot of money building their infrastructure and adding more and more products to their portfolio. Despite record revenues, they were still were not profitable.

http://www.businessweek.com/2000/00_28/b3689001.htm

Pull quote: Some investors are wondering if the e-tailer will ever turn a profit

The difference? Barriers to entry. Amazon may have been seen as vulerable by Wall St, but they had products to sell, an infrastructure to sell them, and customers to sell them to. To compete against them means having to replicate all three. Groupon? They do not have a stable or committed supply chain, and they have occasional customers that are more interested in price than the brand.

Which would you rather compete against if you had a few billion?

Geoffrey

On Thu, Oct 20, 2011 at 12:09 PM, Omkar Joshi <[hidden email]> wrote:

Iqbal

 

I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?

 

About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)

 

Cheers

Omkar

 

On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:

Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.

 

Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again

 

Iqbal

 


From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

 

Guys,

 

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

 

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

 

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

 

Cheers
Omkar

 

 

On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:

It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...

 

On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:

'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================


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  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  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

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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web:www.upside-up.com


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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

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

Their roadshow is valuing it at $12bn or so now (On Wall Street somewhere) . 

The problem with google is what I call the Nicorette problem. The more successful they are the less successful they can become. Most of the merchants use Groupon to attract new users. However they are not prepared to discount every time at 70%, hence if their first offer does not get regular customers, they are less likely to have another offer really soon after. They may wait 6months or so. Because of this Groupon needs lots of merchants to fill in these 6month gaps, so eventually they can have a nice stream of offers. But again each merchant is looking for regular customers, customers however are now looking for huge discounts. Instead of the 70% being a nice carrot to get people in the door, the 70% is more used by people to 'try' something they would not have otherwise have done. This is unlike the 10-20% offers that we get, these we wait for to buy something we want, or to give us some value on something we already want to do, i.e goto Pizza express. 

The lack of repeat customers, leads to lack of repeat merchants, hence churn is huge, which is why Groupon needs to keep moving markets, whether they wrap this up as expansion is irrelevant, they are doing this because saturation of their existing market happens too quickly. The merchants return to local newspaper advertising, just give 20% off, and spend the rest of the discount on a local ad. Better that than getting someone to come to a hairdresser in South London all the way from North London, who will not come again. 

In addition Groupon has lots of competition in the 'coupon' space. Mobile companies are now jumping on the bandwagon, and they can do location better than Groupon. ( I still feel someone needs to plugin offers into Outlook. So I book a meeting, I know when and where it is, all I need now is a feed of offers straight into Outlook/ical/whatever...but that's another story) .

Maybe Groupon should just become a conduit of offers which are they served via other channels, who have existing customers i.e mobile companies, or HR dept on companies who want to give their employees discounts (works great in India).....

Iqbal

P.S $12bn is still good, but I feel someone somewhere is going to be left holding a dead duck


From: Brian Milnes <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 18:05
Subject: RE: Re: [entrepreneur-1056] Groupon going pear shaped

From the Economist (following where OC leads…)
 
 
From: [hidden email] [mailto:[hidden email]] On Behalf Of Geoffrey McCaleb
Sent: 20 October 2011 13:48
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Drifting back to an earlier point: is it fair that we are critically analyzing their model? Or is the Groupon model the new Rock n Roll - some new fangled thang that annoys the Tommy Dorsey generation.

Well, we've mentioned it before, but lets look at Webvan. One of the biggest reasons Webvan failed was because they had to replicate an existing infrastructure (grocery stores), roll out an equally expensive delivery infrastructure, all the while competing in an historically low-margin business. They did have several plusses on their side though, inventory costs were known and plentiful - coke would continue to sell them coke at certain costs assuming they bought enough of it. Secondly, while customer acquisition may be expensive (ok, really expensive), it was true that once people ordered with them they would use the service again and tell their friends. So in theory, once they entered a market, acquisition costs over time would have probably decreased.

Now, contrast that with Groupon. High margin business (ding), but uncertain supply chain (bad), and high acquisition costs (bad). I don't know off the top of my head if such data exists, but if Groupon users consistently bought 1-2 groupons a month, I'm sure we would all be drooling to get in on the IPO. But they don't. But to make matters worse, not only are they spending a fortune to acquire new customers, their supply chain is chaotic and random. Even merchants that like using Groupon, only do them once or twice a year (or every other quarter) http://techcrunch.com/2011/06/18/ribman-groupon-bashing/

So I'll say it again: it is impressive the number of users and revenue they have acquired, but I can't see how a business that is growing but losing around $100M a quarter can be seen as a succesful venture. Look at Amazon. Circa 2000 they were spending a lot of money building their infrastructure and adding more and more products to their portfolio. Despite record revenues, they were still were not profitable.

http://www.businessweek.com/2000/00_28/b3689001.htm

Pull quote: Some investors are wondering if the e-tailer will ever turn a profit

The difference? Barriers to entry. Amazon may have been seen as vulerable by Wall St, but they had products to sell, an infrastructure to sell them, and customers to sell them to. To compete against them means having to replicate all three. Groupon? They do not have a stable or committed supply chain, and they have occasional customers that are more interested in price than the brand.

Which would you rather compete against if you had a few billion?

Geoffrey

On Thu, Oct 20, 2011 at 12:09 PM, Omkar Joshi <[hidden email]> wrote:
Iqbal
 
I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?
 
About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)
 
Cheers
Omkar
 
On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.
 
Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again
 
Iqbal
 

From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Guys,
 
Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.
 
Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 
 
There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.
 
Just ask yourselves what you were doing in November 2008 - its not that long ago :)
 
Cheers
Omkar
 
 
On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...
 
On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web:www.upside-up.com

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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Brian Milnes
In reply to this post by John Gaines

Although I think you’re right about the churn, Iqbal, I’m unsure about the maths.

I’m tight as a budgie’s bottom, but have surprised myself to have used Groupon now three times in 6 months. I’ve used it for buying “indulgences” that would have otherwise been out of my budget. Window cleaning at 60% off, Zoo visit same, Karting (b’day treat for 10 yr old)(and his Dad!).

As you and others have said, the question is, can Groupon get enough merchants in my (quite isolated) geography to continue to entice me (and my ilk)? And as everyone is pointing out, what will it cost them to do so…

I imagine that they might get their model refined to drive the cost of repeating merchant offers down, and therefore make it viable. (Got to take the people out of the equation, as much as it is on the customer side.)

 

From: [hidden email] [mailto:[hidden email]] On Behalf Of Iqbal Gandham
Sent: 20 October 2011 19:34
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

 

Hi

 

Their roadshow is valuing it at $12bn or so now (On Wall Street somewhere) . 

 

The problem with google is what I call the Nicorette problem. The more successful they are the less successful they can become. Most of the merchants use Groupon to attract new users. However they are not prepared to discount every time at 70%, hence if their first offer does not get regular customers, they are less likely to have another offer really soon after. They may wait 6months or so. Because of this Groupon needs lots of merchants to fill in these 6month gaps, so eventually they can have a nice stream of offers. But again each merchant is looking for regular customers, customers however are now looking for huge discounts. Instead of the 70% being a nice carrot to get people in the door, the 70% is more used by people to 'try' something they would not have otherwise have done. This is unlike the 10-20% offers that we get, these we wait for to buy something we want, or to give us some value on something we already want to do, i.e goto Pizza express. 

 

The lack of repeat customers, leads to lack of repeat merchants, hence churn is huge, which is why Groupon needs to keep moving markets, whether they wrap this up as expansion is irrelevant, they are doing this because saturation of their existing market happens too quickly. The merchants return to local newspaper advertising, just give 20% off, and spend the rest of the discount on a local ad. Better that than getting someone to come to a hairdresser in South London all the way from North London, who will not come again. 

 

In addition Groupon has lots of competition in the 'coupon' space. Mobile companies are now jumping on the bandwagon, and they can do location better than Groupon. ( I still feel someone needs to plugin offers into Outlook. So I book a meeting, I know when and where it is, all I need now is a feed of offers straight into Outlook/ical/whatever...but that's another story) .

 

Maybe Groupon should just become a conduit of offers which are they served via other channels, who have existing customers i.e mobile companies, or HR dept on companies who want to give their employees discounts (works great in India).....

 

Iqbal

 

P.S $12bn is still good, but I feel someone somewhere is going to be left holding a dead duck

 


From: Brian Milnes <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 18:05
Subject: RE: Re: [entrepreneur-1056] Groupon going pear shaped

From the Economist (following where OC leads…)

 

 

From: [hidden email] [hidden email] On Behalf Of Geoffrey McCaleb
Sent: 20 October 2011 13:48
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

 

Drifting back to an earlier point: is it fair that we are critically analyzing their model? Or is the Groupon model the new Rock n Roll - some new fangled thang that annoys the Tommy Dorsey generation.

Well, we've mentioned it before, but lets look at Webvan. One of the biggest reasons Webvan failed was because they had to replicate an existing infrastructure (grocery stores), roll out an equally expensive delivery infrastructure, all the while competing in an historically low-margin business. They did have several plusses on their side though, inventory costs were known and plentiful - coke would continue to sell them coke at certain costs assuming they bought enough of it. Secondly, while customer acquisition may be expensive (ok, really expensive), it was true that once people ordered with them they would use the service again and tell their friends. So in theory, once they entered a market, acquisition costs over time would have probably decreased.

Now, contrast that with Groupon. High margin business (ding), but uncertain supply chain (bad), and high acquisition costs (bad). I don't know off the top of my head if such data exists, but if Groupon users consistently bought 1-2 groupons a month, I'm sure we would all be drooling to get in on the IPO. But they don't. But to make matters worse, not only are they spending a fortune to acquire new customers, their supply chain is chaotic and random. Even merchants that like using Groupon, only do them once or twice a year (or every other quarter) http://techcrunch.com/2011/06/18/ribman-groupon-bashing/

So I'll say it again: it is impressive the number of users and revenue they have acquired, but I can't see how a business that is growing but losing around $100M a quarter can be seen as a succesful venture. Look at Amazon. Circa 2000 they were spending a lot of money building their infrastructure and adding more and more products to their portfolio. Despite record revenues, they were still were not profitable.

http://www.businessweek.com/2000/00_28/b3689001.htm

Pull quote: Some investors are wondering if the e-tailer will ever turn a profit

The difference? Barriers to entry. Amazon may have been seen as vulerable by Wall St, but they had products to sell, an infrastructure to sell them, and customers to sell them to. To compete against them means having to replicate all three. Groupon? They do not have a stable or committed supply chain, and they have occasional customers that are more interested in price than the brand.

Which would you rather compete against if you had a few billion?

Geoffrey

On Thu, Oct 20, 2011 at 12:09 PM, Omkar Joshi <[hidden email]> wrote:

Iqbal

 

I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?

 

About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)

 

Cheers

Omkar

 

On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:

Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.

 

Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again

 

Iqbal

 


From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

 

Guys,

 

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

 

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

 

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

 

Cheers
Omkar

 

 

On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:

It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...

 

On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:

'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================


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  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  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

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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web:www.upside-up.com


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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Johnathan Agnes
In reply to this post by John Gaines

Dropbox confirmed that every penny is going into the company. After the Airbnb PR disaster (someone leaked a high-profile VC’s email declining to participate in their current round because he felt they were trying to partially liquidate in a dubious manner) and the backlash against groupon’s partial exit, it’s going to be increasingly hard for founders to take money off the table in late rounds (unless we’re talking six figures of lifestyle money). Once the founders have walked off with retirement money, how do you keep them motivated unless they’re proprietarily minded control freaks? It’s bad business and it suggests that the Groupon investors were naive.

 

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 Omkar Joshi
Sent: 20 October 2011 12:10
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

 

Iqbal

 

I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?

 

About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)

 

Cheers

Omkar

 

On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:

Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.

 

Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again

 

Iqbal

 


From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped

 

Guys,

 

Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.

 

Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 

 

There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.

 

Just ask yourselves what you were doing in November 2008 - its not that long ago :)

 

Cheers
Omkar

 

 

On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:

It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...

 

On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:

'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================


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  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  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

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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web:www.upside-up.com


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Sent: 18 October 2011 19:03
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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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Iqbal V Gandham
In reply to this post by John Gaines
Naive, you're too kind, stupid is what came to my mind


From: Johnathan Agnes <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 18:55
Subject: RE: Re: [entrepreneur-1056] Groupon going pear shaped

Dropbox confirmed that every penny is going into the company. After the Airbnb PR disaster (someone leaked a high-profile VC’s email declining to participate in their current round because he felt they were trying to partially liquidate in a dubious manner) and the backlash against groupon’s partial exit, it’s going to be increasingly hard for founders to take money off the table in late rounds (unless we’re talking six figures of lifestyle money). Once the founders have walked off with retirement money, how do you keep them motivated unless they’re proprietarily minded control freaks? It’s bad business and it suggests that the Groupon investors were naive.
 
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 Omkar Joshi
Sent: 20 October 2011 12:10
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Iqbal
 
I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?
 
About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)
 
Cheers
Omkar
 
On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.
 
Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again
 
Iqbal
 

From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Guys,
 
Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.
 
Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 
 
There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.
 
Just ask yourselves what you were doing in November 2008 - its not that long ago :)
 
Cheers
Omkar
 
 
On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...
 
On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
[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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Iqbal V Gandham
In reply to this post by John Gaines
This begs the question "How tight is a budgies bottom"

Iqbal


From: Brian Milnes <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 18:49
Subject: RE: Re: [entrepreneur-1056] Groupon going pear shaped

Although I think you’re right about the churn, Iqbal, I’m unsure about the maths.

I’m tight as a budgie’s bottom, but have surprised myself to have used Groupon now three times in 6 months. I’ve used it for buying “indulgences” that would have otherwise been out of my budget. Window cleaning at 60% off, Zoo visit same, Karting (b’day treat for 10 yr old)(and his Dad!).

As you and others have said, the question is, can Groupon get enough merchants in my (quite isolated) geography to continue to entice me (and my ilk)? And as everyone is pointing out, what will it cost them to do so…

I imagine that they might get their model refined to drive the cost of repeating merchant offers down, and therefore make it viable. (Got to take the people out of the equation, as much as it is on the customer side.)
 
From: [hidden email] [mailto:[hidden email]] On Behalf Of Iqbal Gandham
Sent: 20 October 2011 19:34
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Hi
 
Their roadshow is valuing it at $12bn or so now (On Wall Street somewhere) . 
 
The problem with google is what I call the Nicorette problem. The more successful they are the less successful they can become. Most of the merchants use Groupon to attract new users. However they are not prepared to discount every time at 70%, hence if their first offer does not get regular customers, they are less likely to have another offer really soon after. They may wait 6months or so. Because of this Groupon needs lots of merchants to fill in these 6month gaps, so eventually they can have a nice stream of offers. But again each merchant is looking for regular customers, customers however are now looking for huge discounts. Instead of the 70% being a nice carrot to get people in the door, the 70% is more used by people to 'try' something they would not have otherwise have done. This is unlike the 10-20% offers that we get, these we wait for to buy something we want, or to give us some value on something we already want to do, i.e goto Pizza express. 
 
The lack of repeat customers, leads to lack of repeat merchants, hence churn is huge, which is why Groupon needs to keep moving markets, whether they wrap this up as expansion is irrelevant, they are doing this because saturation of their existing market happens too quickly. The merchants return to local newspaper advertising, just give 20% off, and spend the rest of the discount on a local ad. Better that than getting someone to come to a hairdresser in South London all the way from North London, who will not come again. 
 
In addition Groupon has lots of competition in the 'coupon' space. Mobile companies are now jumping on the bandwagon, and they can do location better than Groupon. ( I still feel someone needs to plugin offers into Outlook. So I book a meeting, I know when and where it is, all I need now is a feed of offers straight into Outlook/ical/whatever...but that's another story) .
 
Maybe Groupon should just become a conduit of offers which are they served via other channels, who have existing customers i.e mobile companies, or HR dept on companies who want to give their employees discounts (works great in India).....
 
Iqbal
 
P.S $12bn is still good, but I feel someone somewhere is going to be left holding a dead duck
 

From: Brian Milnes <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 18:05
Subject: RE: Re: [entrepreneur-1056] Groupon going pear shaped
From the Economist (following where OC leads…)
 
 
From: [hidden email] [hidden email] On Behalf Of Geoffrey McCaleb
Sent: 20 October 2011 13:48
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Drifting back to an earlier point: is it fair that we are critically analyzing their model? Or is the Groupon model the new Rock n Roll - some new fangled thang that annoys the Tommy Dorsey generation.

Well, we've mentioned it before, but lets look at Webvan. One of the biggest reasons Webvan failed was because they had to replicate an existing infrastructure (grocery stores), roll out an equally expensive delivery infrastructure, all the while competing in an historically low-margin business. They did have several plusses on their side though, inventory costs were known and plentiful - coke would continue to sell them coke at certain costs assuming they bought enough of it. Secondly, while customer acquisition may be expensive (ok, really expensive), it was true that once people ordered with them they would use the service again and tell their friends. So in theory, once they entered a market, acquisition costs over time would have probably decreased.

Now, contrast that with Groupon. High margin business (ding), but uncertain supply chain (bad), and high acquisition costs (bad). I don't know off the top of my head if such data exists, but if Groupon users consistently bought 1-2 groupons a month, I'm sure we would all be drooling to get in on the IPO. But they don't. But to make matters worse, not only are they spending a fortune to acquire new customers, their supply chain is chaotic and random. Even merchants that like using Groupon, only do them once or twice a year (or every other quarter) http://techcrunch.com/2011/06/18/ribman-groupon-bashing/

So I'll say it again: it is impressive the number of users and revenue they have acquired, but I can't see how a business that is growing but losing around $100M a quarter can be seen as a succesful venture. Look at Amazon. Circa 2000 they were spending a lot of money building their infrastructure and adding more and more products to their portfolio. Despite record revenues, they were still were not profitable.

http://www.businessweek.com/2000/00_28/b3689001.htm

Pull quote: Some investors are wondering if the e-tailer will ever turn a profit

The difference? Barriers to entry. Amazon may have been seen as vulerable by Wall St, but they had products to sell, an infrastructure to sell them, and customers to sell them to. To compete against them means having to replicate all three. Groupon? They do not have a stable or committed supply chain, and they have occasional customers that are more interested in price than the brand.

Which would you rather compete against if you had a few billion?

Geoffrey
On Thu, Oct 20, 2011 at 12:09 PM, Omkar Joshi <[hidden email]> wrote:
Iqbal
 
I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?
 
About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)
 
Cheers
Omkar
 
On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.
 
Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again
 
Iqbal
 

From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Guys,
 
Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.
 
Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 
 
There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.
 
Just ask yourselves what you were doing in November 2008 - its not that long ago :)
 
Cheers
Omkar
 
 
On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...
 
On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T
Sent: 18 October 2011 19:03
[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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Larry-6
In reply to this post by John Gaines
Now we can bet  ? 

Personally I  bet Groupon will fail...  

but with better numbers for all parties, some will succeed and make it works, then there will be some consolidation, as for many "new" business, and a few brands will cater worldwide.

I can imagine a lot of software optimisation to give less to more people getting a fair value they will buy repeatedly... just good commerce.
Salesmen costs are too high. For a merchant, finding a slot for starting a good relation with non customers should be done all on the internet, like for eBay listings.

Laurent Guyot-Sionnest
+33(0) 6 74 19 91 33 
Chief Tiki Officer, Board Member
Tiki’labs sas  http://www.tikimee.com/fr/list.html   



 



On Thu, Oct 20, 2011 at 9:22 PM, Iqbal Gandham <[hidden email]> wrote:
Naive, you're too kind, stupid is what came to my mind


From: Johnathan Agnes <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 18:55

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

Dropbox confirmed that every penny is going into the company. After the Airbnb PR disaster (someone leaked a high-profile VC’s email declining to participate in their current round because he felt they were trying to partially liquidate in a dubious manner) and the backlash against groupon’s partial exit, it’s going to be increasingly hard for founders to take money off the table in late rounds (unless we’re talking six figures of lifestyle money). Once the founders have walked off with retirement money, how do you keep them motivated unless they’re proprietarily minded control freaks? It’s bad business and it suggests that the Groupon investors were naive.
 
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 Omkar Joshi

Sent: 20 October 2011 12:10
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Iqbal
 
I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?
 
About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)
 
Cheers
Omkar
 
On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.
 
Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again
 
Iqbal
 

From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Guys,
 
Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.
 
Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 
 
There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.
 
Just ask yourselves what you were doing in November 2008 - its not that long ago :)
 
Cheers
Omkar
 
 
On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...
 
On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T

Sent: 18 October 2011 19:03
[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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Geoffrey McCaleb
In reply to this post by John Gaines
Stupid? Please, don't call them that until they've passed on my next venture.


On Thu, Oct 20, 2011 at 8:22 PM, Iqbal Gandham <[hidden email]> wrote:
Naive, you're too kind, stupid is what came to my mind


From: Johnathan Agnes <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 18:55

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

Dropbox confirmed that every penny is going into the company. After the Airbnb PR disaster (someone leaked a high-profile VC’s email declining to participate in their current round because he felt they were trying to partially liquidate in a dubious manner) and the backlash against groupon’s partial exit, it’s going to be increasingly hard for founders to take money off the table in late rounds (unless we’re talking six figures of lifestyle money). Once the founders have walked off with retirement money, how do you keep them motivated unless they’re proprietarily minded control freaks? It’s bad business and it suggests that the Groupon investors were naive.
 
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 Omkar Joshi

Sent: 20 October 2011 12:10
To: [hidden email]
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Iqbal
 
I think it happens all the time though. When new money comes in from bigger investors, early investors and founders/employees always cash out - don't they? I remember it happened with facebook as well when the Microsoft money came in. I also wonder how much of the $250m that Dropbox raised is meant to stay in the business - I suspect not a lot! Anyone got any ideas?
 
About the google offer - difficult to say but if they do IPO then they will top that valuation. Although the window for IPOs is very tricky and we in EU are doing no favours to anyone at present :)
 
Cheers
Omkar
 
On 20 October 2011 11:38, Iqbal Gandham <[hidden email]> wrote:
Omkar we are talking about a company which raised almost $1bn and then gave it to investors and employees. That is not good in any language.
 
Also a company which said no to $6bn from google, hence either they believed their own hype or missed a trick. I feel Google will still buy them but at around $2bn mark, IPO is difficult, unless Facebook starts the ball rolling and gets everyone excited about tech again
 
Iqbal
 

From: Omkar Joshi <[hidden email]>
To: [hidden email]
Sent: Thursday, 20 October 2011, 9:03
Subject: Re: Re: [entrepreneur-1056] Groupon going pear shaped
 
Guys,
 
Its easy to go on a Groupon-bashing mission but its a business that was launched in November 2008 ie less than 3 years old and we are speaking about a multi-billion dollar IPO.
 
Sorry, but that is just unbelievable for any company to go from launch to IPO in such a short space of time! I don't know for a fact but that must be some sort of a record in itself.  Yes we are speaking about a lower than planned, even 50% lower, IPO pricing but then if you've been following equity markets lately, there's several others who've suffered the same fate so there's quite a lot of market-risk being priced in.. 
 
There is something about the company and the way they've went about executing on the idea. As many of you have identified, there most important strategic move was indeed to grow quickly to avoid cloning of the business model (which happened anyway) but they pioneered it.
 
Just ask yourselves what you were doing in November 2008 - its not that long ago :)
 
Cheers
Omkar
 
 
On 20 October 2011 09:50, phil gainley <[hidden email]> wrote:
It would be great to see groupon sell its shares on groupon if that was possible, i wonder how many takers there would be?...
 
On Thu, Oct 20, 2011 at 9:17 AM, John Gaines <[hidden email]> wrote:
'Mad deal'...... is doing that.
Oct 20, 2011 09:06:08 AM, [hidden email] wrote:

===========================================

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  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  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
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  wrote:
Replies in-line - there is some more Press coverage by now on FT and WSJ From: Johnathan Agnes Sent: Tuesday, October 18, 2011 11:42 PMTo: [hidden email]: 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 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  Clerkenwell Workshops, Clerkenwell Close, London EC1R 0ATfreephone:0808 222 0088web: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. [hidden email] [mailto:[hidden email]] On Behalf Of Johannes T

Sent: 18 October 2011 19:03
[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   From: Geoffrey McCalebSent:Tuesday, October 18, 2011 3:37 PMTo: [hidden email]: 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  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 businessMaybe 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  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. 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: Re: [entrepreneur-1056] Groupon going pear shaped

Laurence McCahill
In reply to this post by John Gaines
Sorry I'm out of the office from Friday 21st October until Monday 31st October.

If the matter is urgent you can call Carlos on 01273 621106.

Regards,

Laurence McCahill



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