

How To Earn $4 billion From Coupons - jkuria
http://online.wsj.com/article/SB10001424052702304563104576363891724546426.html

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kloncks
For the record, I don't think Groupon is a Ponzi scheme. At least, not any
more than I believe Social Security is the greatest Ponzi scheme of all time.
But I have an issue I can't yet resolve.

Could someone explain to me why someone who stands to turn $1,000,000 into
$4,000,000,000 would ever find it wise to cash out a measly $300,000,000 out?

The only thing I can think of is the following thinking. If Groupon isn't that
successful, I'll be very rich. If Groupon is successful, I'll be very very
rich.

My problem is that I still don't see why someone with intimate knowledge of
the company wouldn't believe in the concept hard enough to justify a little
patience for a _much_ higher payout.

Series A-G investors cashing out might make sense - with funds having time
limits, investors selling small shares, or other reasons - but I don't
understand company insiders and co-founders (Andrew or Eric) cashing out tens
of millions and hundreds of millions respectively.

They know the company. They've worked there. Do they sincerely not strongly
believe in its success? And, if that's the case, why are they asking the
public to believe?

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byrneseyeview
Diversification. It's usually imprudent to have 90%+ of your net worth
invested in a single three-year-old company, if you have people willing to buy
the shares from you.

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dennisgorelik
"Because of his existing wealth, he said, the Groupon IPO windfall won't bring
big changes to his life."

If he's already wealthy - why would he care about diversification?

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byrneseyeview
If you believe in modern financial theory, diversification is the closest
thing to free money available. It would be weird and excessive for him _not_
to diversify.

(Someone with Internet access, posting to YC, is probably going to have a
lifetime income in the top 1% of the world's population. So keep in mind that
most people could ask a similar question of you.)

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dennisgorelik
Modern financial theory does not take into account the insider's information.

If based on his inside knowledge he believes he can make 100%+ in a year, it
would be silly to diversify that investment into other stocks with less than
10% yearly return.

On the other hand if his inside knowledge is telling him that company is going
to file for bankruptcy protection in the next couple of years - it makes sense
to sell all his holdings ASAP.

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byrneseyeview
It does. There's a whole lot of research into how insider information
propagates, and what the ideal portfolio strategy is given such information.

But it's like any other edge. It can still make sense to diversify. That's
empirically true; even Boesky put most of his money into stuff he didn't have
an insider edge in.

In this case, it all depends on what kind of edge Lefkofsky has, what kind of
liquidity discount he's willing to deal with, whether he and his investors
have different time preferences, etc.

It would be truly odd if the rise of the fastest-growing business in history
_and_ the rise of the first fairly liquid pre-IPO market _and_ a massive
increase in the US money supply didn't lead to this kind of change in investor
and founder behavior.

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jc123
_"he has already cashed out more than $300 million of Groupon stock as the
company sold shares to outside investors"_

This money should have been spent on funding Groupon, hiring people, improving
their tech, infrastructure, etc. Have there been other companies in the past
where someone cashed out $300 million and is then using an IPO with the guise
of raising money for the company?

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raganwald
If the money came from Groupon's revenues, sure. But if he owned stock in the
company and he sold his stock to someone else for cash, what exactly is the
problem here?

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Locke1689
I guess I'm the only one who thought this was going to be a bond investment
article...

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ansy
I half expected the article to be like the old joke:

"How do you get $1 million? Start with $10 million and open a restaurant."

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phlux
I have a major problem with groupon and while I have not read every article
posted in recent months on the company -- I have followed their revenue
numbers enough to further beffuddlement:

Groupon's business model is to get retailers to discount their product by 75%
- sell to the end user through groupon for 50% and groupon takes 25% of the
original retail cost.

My friends in SF who own restaurants, bars and shops all refuse to work with
groupon as the costs to them just dont make sense.

As far as I am concerned, even though their revenues are staggering - the
model is flawed and not sustainable. The only thing to do is to hype the fuck
out of the company and cash out big - the revenues will plateau and the model
will need to pivot/evolve in order to return value to the businesses.

The problem is that the massive hype that groupon has will continue and far
too many VCs and SV elite will be sucking the groupon cock for years...

Personally, I actually dont have much respect for the model. As a groupon user
- I havent bought a thing now in 11 months and as I mentioned the businesses
my friends own here in SF all refuse to participate.

