Coupons.com it keeps a much lower profile than a lot of its companions in the billion-dollar club.
The company has been around for more than 13 years, and its goal hasn’t changed: it wants to take the old-fashioned newspaper coupon business and move it entirely online.
It is privately held and has never taken venture money or private equity investments. In July, however, it raised $200 million from private investors at more than a billion-dollar valuation.
It’s going to use that money to expand and try to continue the “hyper growth” of the last three years. It’s on track for $100 million in revenue in 2011, says CEO Steven Boal.
We talked to Boal following the company’s buyout of UK-based Couponstar, which Coupons.com already half-owned.
Here’s what we learned:
- The company has been private for 13 years, but Boal isn’t religious about it and doesn’t rule out an IPO. “That remains a viable option for us.”
- Coupons.com earmarked half of the $200 million investment for share buybacks, but the offering was undersubscribed so it has well over $100 million cash left over. That cash is being used for expansion — particularly hiring new salespeople and engineers — and acquisitions.
- The company hasn’t taken any money from time-based funds, which means it has less pressure to show a return by a certain date. As Boal put it, “We are a non-venture-backed, non-PE-backed company, so we have no time-based duration funds in the company. Prior to the $200 million, we had raised $85 million, all privately.”
- Greylock bought $30 million of Coupons.com shares on the secondary market. The firm is not a direct investor. “I’ve spent a good amount of time with Reid Hoffman and James Slavet, and felt there was a really good connection between us, and they wanted to participate in the company, they approached us. The company doesn’t have any securities for sale, we’ve got more then enough cash and so they were able to secure shares through an existing shareholder.”
- If you need any more evidence that print newspapers are toast: “Still the number one reason people get the Sunday paper is for coupons but remarkably, the redemption rate of coupons in the Sunday paper has gone from 1.6% in 1999 to 0.6% last year. Coupons.com has gone from 5% redemption rate in 2005 to 18% last year.”
Here’s a transcript of our conversation, slightly edited for length.
Business Insider: You guys have been around for more than a decade, right?
Steven Boal: We are about 13 and a half year old company, founded in May of 1998. The objective then is very similar to the objective now. The scope has widened, but the primary objective is the same. At the time, we had put our targets on shifting 20% of the offline price promotion business, which at at the time was $6.5 billion and the goal was to shift 20% of that onto the Coupons.com platform — we weren’t called that when we started — but same platform, primarily out of the Sunday newspaper. Remarkably, 85% of coupons distributed in the U.S. are still today distributed in that vehicle. 330 billion coupons are distributed in this country every year.
We spent the first 3 years working out the architecture, technology, how we would deliver a secure piece of paper with a currency value associated with it, off people’s printers. Spent the next 5 years very patiently working with the industry, manufactures, retailers, consumers, clearing organisations, fraud and security organisations, etc. That totals us to 8 years, then we started to scale the business, slowly, for the next two. And then the last 3 years have been really hyper growth. Coupons.com is now greater than 90% market share of all digital coupons, in the U.S., and 10% of coupons redeemed in the U.S. come off our platform. The primary difference in scope and objective between 13 years ago and now is that 13 years ago the objective was to move 20% of the business online and now we’re aiming for 100%. Small change in scope but the same basic vision.
BI: Is it still a $6 billion a year industry?
SB: The offline business, direct to consumer is still a $6.6 billion industry and we have clear market share there. What we also have done in the last several years is build a retail platform such that our services are now on the websites or store locations representing 50,000 stores in the U.S., so we have a full national coverage of retail and so we have started to build and deliver services for the retail and trade side of our business and that’s about $110 billion a year as an addressable market.
BI: What’s your revenue profile like, and are you guys firmly in the black, or in the growth stage?
SB: I think we’ve announced publicly we’re going to do $100 million in revenue this year. We have operated profitably but certainly after taking in $200 million worth of investment, we’re not looking to be profitable for the next several quarters.
BI: You had that $200 million investment over the summer and another investment from Greylock. What was the additional investment from Greylock about?
SB: The Greylock investment wasn’t a direct investment in the business. They took an interest in the company through a secondary market transaction. The company has got an awful lot of cash, it doesn’t need any cash but we’ve got to know the Greylock folks over the last couple of years, very well, and gotten to benefit from some guidance and advice on some product discussions, and their relationships. In particular, I’ve spent a good amount of time with Reid Hoffman and James Slavet, and felt there was a really good connection between us, and they wanted to participate in the company, they approached us. The company doesn’t have any securities for sale, we’ve got more then enough cash and so they were able to secure shares through an existing shareholder.
BI: You been around for more than 13 years and private the entire time. I imagine you’ve issued some shares to employees over that time. Has there been any effort to bring those shares back in house?
SB: Of the $200 million we raised, we said we would spend up to half of that, redeeming shares across the shareholder base. Everybody got treated exactly the same, employees, ex-employees, outside shareholders, everybody. We did a tender offer. We were undersubscribed so we ended up not using $100 million or anything close to that so the company has well in excess of $100 million in cash that it’s using to move that promotions spend onto our platform. We acquired our international partner, Couponstar, and that’s part of our growth. We had 288 employees at the end of June, we have 425 now. We should be ore 450 by end of the year. We’re facing the challenges that companies like us face now. We’re out of office space, we’re extending our platform through a very active mobility platform. Connective devices, printers, kiosks in stores, etc.
BI: What are those new employees doing?
SB: Most of the growth is coming the sales and engineering organisations. We have a sales organisation that I would argue is probably the best in the industry at this point. We’ve been able to attract and retain the top folks from most of the offline companies and have got an unparalleled sales training program now, and I think we’ve got over 65 people in our sales organisation.
BI: You’re expanding into mobile and other technical areas?
SB: Correct. We own Grocery iQ which is the #1 shopping list management system for mobile. It’s iPhone, iPad, Android, Blackberry, also web. That product is interconnected with our couponing engines. You manage your shopping list, you run out of cereal, you scan the barcode and it adds it to your shopping list. It syncs it to anybody else who subscribes to your list. You manage it by store and you can actually tap coupons right in the app, and digitally redeem them when you check out.
BI: You’ve been private for a long time. What are the benefits of staying private versus going public?
SB: There are benefits to staying private and staying private the way we have done it. We are a non-venture-backed, non-PE-backed company, so we have no time-based duration funds in the company. Prior to the $200 million, we had raised $85 million, all privately.
This is a very big market space, again $110 billion in trade, $6.6 billion in consumer and it’s a marketplace that hasn’t changed in decades because it was constrained by the physicality of the newspaper…..Over the years, we have acquired or built all the pieces that allow us to go cradle to grave on the promotions space….
BI: So you’re saying you have the cash you need, and the expansion is there so you don’t need to go through public markets?
SB: No, my point of view specifically is there’s no reason to seek private funds. But to the extent that being public was something we may have contemplated, the fund raising did not change those plans. That remains a viable option for us.
BI: What do you think of daily deals? That whole industry has come out of nowhere. It’s similar in some respects to couponing, right?
SB: It’s a completely different business. We’re more likely to partner with one or more of them, then not. That’s a different market and what we do is solve a fundamentally different and much harder problem to solve. What we do is, we need to deconstruct what’s in a shoppers basket.
So a daily deal or a credit card company looking to capitalise on service based discounting, locality based discounting, really only needs to know you’re in a certain establishment on a date, they don’t have to know what’s in your purchase basket. For us, we need to know what’s in your basket. What we do is know, via things like family code services and other nuanced stuff in our business, we know what’s in a shoppers basket so that we can apply the discounts properly, so that’s just a much harder problem to solve.
BI: So what does keep you up at night? Who’s the competition? What technological shifts in the industry could cause trouble?
SB: The technology shifts in the industry doesn’t trouble me at all. They’re very exciting. We’re working with payment issuers, point of sale providers, loyalty based providers, wallet manufacturers, so we work with a lot of this infrastructure, developing the marketplace, which I find very exciting.
What do we compete against? We’re really competing against dollars that the offline promotion companies have been servicing for decades. Those companies are hooked on offline delivery vehicles, like the Sunday newspaper, and if you look at big secular changes taking place, the Sunday newspaper has dropped below 40 million circulation, below where it was in the 1940’s. There’s a lot of reasons for that, there’s an ageing demographic, people are consuming their news online now. Still the number one reason people get the Sunday paper is for coupons but remarkably, the redemption rate of coupons in the Sunday paper has gone from 1.6% in 1999 to 0.6% last year. Coupons.com has gone from 5% redemption rate in 2005 to 18% last year. The efficacy of the model is breaking down offline and brands must move dollars online in order to continue to support retailers buying products and consumers saving money. Coupons.com, after 13.5 years, I love the quote I heard someone say about us, ‘”it takes 13 years to build an overnight success.” Knock on wood, coupons.com is the only place that brands can move very large budgets, quickly.
BI: What do you think in general of the future of the newspaper business? Craigslist decimated the classified part of their business. Does everything move online and provide a lot of room for other types of news gathering?
SB: It’s a really interesting question. I always have to make sure I explain to people my position on this. My position is not that newspaper organisations die. It’s that the newspaper itself, the physical paper is clearly on its way out of business. The rate of decline is accelerating year over year, it’s been an absolutely precipitous fall. The economies of scale are not there anymore and it’s not a matter of decade, it’s a matter of just a few years when the Sunday subscription and newsstand sales are going to be just a fraction of what it is today. Independent news and coverage organisations is such a pillar, such a foundational part of a free society that people, I think now, get to digest more news. They get to read more opinions, get to read debate on a more regular actionable basis, in a format they’re most comfortable in. Whether it be people sharing news, or things like Flipboard, or going to the websites of news organisations. I think that will only grow, and in fact, we’ve bet pretty heavily. We power of 500 websites of news organisations for coupling.
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