DST Wasn't The Only Firm Offering Groupon A Monster Valuation

Jonathan Nelson of Providence Equity PartnersProvidence Equity Partners CEO Jonathan Nelson

Today, Russian holding firm Digital Sky Technologies (DST) announced it has invested $135 million in group-buying startup Groupon.The investment pegged Groupon’s value at over $1 billion, a source close to the funding tells us.

But even with that huge number, it wasn’t always clear DST would get the deal.

Our source says DST had stiff competition from several other private equity firms looking for a piece of Groupon.

These contenders included Providence Equity Partners and Technology Crossover Ventures.

Usually, DST is able to scare away the competition by offering the startups it invests in huge valuations.

Last summer, it invested in Facebook at a $10 billion valuation. Last fall, it plunked $300 million in Zynga at a valuation some say approached $3 billion.

But huge money didn’t do the trick alone this time. Sources say Providence neared DST’s offer, with valuations approaching $1 billion. TCV’s offer is said to have valued Groupon above $1 billion.

The deal came down to Groupon’s board having to decide: With all things being equal (as they were) whose money is worth more?

Groupon went with DST.

We asked Groupon CEO Andrew Mason why.

“DST is just cool,” he told us.

“I think they’re disrupting the entire late-stage investment business. They are good at identifying exceptional companies and getting behind them in a way that entrepreneurs want them to. They don’t get all caught up in terms. They are very accommodating.”

Andrew also says said that unlike lots of investors, he actually wants to hear what DST has to say. He said DST’s people “are surprisingly smart.”

Correction: We’ve now learned from a source that Providence’s bid only “approached” $1 billion. Previously, we had that Providence’s valuation exceeded $1 billion.

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