Grotech Ventures can thank LivingSocial for an early $200 Million Christmas present.
Venture Capitalists ride a roller coaster that is definitely not for the squeamish. For VCs that means trying to find the next Apple or for that matter Chipotle (CMG) – have you seen where that stock is trading? Accomplish that and you definitely show your investors the money.
Grotech Ventures has certainly accomplished that. Their partnership with LivingSocial (formerly known as Hungry Machine) has turned out to be an enjoyable and extremely lucrative ride. Recently Grotech announced the sale of a portion of their shares in LivingSocial for a whopping $200 Million. peHUB was the first to report the news on the sale of the shares, which has since been confirmed by Fortune.
There still remains a tremendous amount of uncertainty as to their remaining holdings in LivingSocial. Sources close to the situation state that “Grotech is still holding on to most of its position in the District-based company”; however, the numbers I hear and read about suggest that Grotech has liquidated between 80 to 95% of their LivingSocial position.
Early Beginnings: In July of 2008 Grotech must have seen something they liked as they provided more than $5 million in Series A funding. That first round also included a personal investment from Steve Case, co-founder of AOL. A portion of those funds were used to acquire BuyYourFriendADrink.com
In 2009 LivingSocial launched their daily deal business. In March of 2010 an additional $25 million in Series B funding was led by U.S. Venture Funding and also participated in by Grotech. Then in April of 2010 another $14 million in Series C funding led by Lightspeed Venture Partners, included U.S. Venture Partners, Grotech Ventures and Steve Case’s Revolution, LLC.
All one needs to do is to read Grotech’s mission statement to realise they have definitely succeeded in this venture:
“Our strategy is simple: early investors in high-potential technology companies. Grotech Ventures initially invests from $500,000 to $5 million and looks to continue investing and building value throughout the growth of your enterprise. We have the operational knowledge, personal networks, and industry expertise necessary to support our portfolio companies at each stage of the partnership.”
Not only have they have successfully aided LivingSocial’s rapid growth from a small group working on Facebook apps, to one of the top five players in the daily deal industry, they have also shown early investors a hefty return. While the total amount invested by Grotech remains unclear, without a doubt, that $200 million banked represents a ton of seed capital now available for other ventures. Remember for VCs it is crucial to have funds available for other start-ups and to continue spreading out the risk and capital to multiple opportunities.
Interestingly enough, the shares Grotech liquidated were sold privately to avoid any secondary market issues although at least one hedge fund participated, which begs the question: Why not hold on until after their (LivingSocial ‘s) Initial Public Offering (IPO)? Several reasons come to mind.
Grotech has managed over $1 billion of capital while funding more than 100 companies since 1984. By no means are they a super large VC firm. That $200 million they just took off the table represents a huge slice of their VC pie. There would be no surprises if many of the partners at Grotech didn’t want to reduce their exposure with the knowledge that should LivingSocial go public and have success, the remaining shares would be icing on the cake. Keep in mind, there are no guarantees that an IPO will be successful or that it will even happen.
In my opinion our economy remains fragile, so that $200 million is a gift. And talk about speculation, there continues to be a plethora of negative media surrounding valuations in this industry following Groupon’s filing to go public, with some even questioning Groupon’s sustainability. (LivingSocial’s valuation ranges from $2 billion to $4 billion.)
Regardless, kudos to Grotech for taking a chance on four employees from Revolution Health working in an apartment above an antique store in Georgetown.
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