Photo: Dan Frommer, Business Insider
Groupon is raising $950 million at a $4.75 billion valuation, sources tell Mike Arrington. Investment bank Allen & Co is said to be advising Groupon, and they expect that much of the round will be taken off the table by the company’s founders.Congratulations, Andrew Mason! You took step 1 of our advice on what Groupon should do next.
A few things seem off to us here.
First of all, why would the founders take so much money off the table? Most of the previous $135 million round was already taken off the table by the founders, and co-founders Brad Keywell and Eric Lefkofsky are already wealthy from other ventures. Do they need a private jet this second? If they need that much money that fast, they should have just taken Google‘s $6 billion offer (or gone public). Of course good advice for a startup (and founders, we guess) is to raise money when you can, not when you have to, and we still think they were right to turn down Google.
Insider selling is never a good sign at any company. Maybe the founders think the doubters about whether Groupon can sustain its business model have a point and want to take the money off the table now — but again, why not take Google’s higher offer in that case? Unless they think that offer would have languished for years in antitrust proceedings.
Second, the valuation seems low, even if it’s pre-money. Groupon recently hit a whopping $2 billion run-rate in gross merchandise sales, which probably means around $1 billion in revenue. For a high-growth, profitable startup like that, you would be talking about 10X revenue, at least. Facebook is trading in private markets at more than 20X revenue and has less user growth upside left — these are very different businesses of course (Facebook has network effects, for starters) but 4/5X revenue for a startup with Groupon’s growth and profits seems low.
Then again, the universe of people who can put in $950 million into a startup is pretty small, which reduces Groupon’s options. Growth venture funds and even DST aren’t that big, and Groupon might still be too young for truly big financial players like buyout firms and big banks. Maybe that’s the explanation.
Still, something about this doesn’t sit right with us. Either TechCrunch’s sources are wrong or the people at Groupon know something we don’t.
Now Read: Ok Groupon, Here’s What You Do Now
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