
Groupon Insiders Take $345 Million Off The Table In Latest Funding Round - abraham
http://techcrunch.com/2010/12/30/groupon-insiders-345-million/
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johnrob
This is the 2010 version of an IPO.

~~~
dy
Thanks to government regulation, it's become so onerous to do an IPO to the
public that the little man is effectively left out of these opportunities.

My guess is it won't be long until secondmarket comes under SEC regulation and
catering to accredited investors won't be a shield anymore.

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achompas
Interesting note in this article: $345 of the $500 million in funding will go
to "executive officers, directors, or promoters." This somewhat contradicts
what I read yesterday from P Morgan Brown (via The Atlantic Tech) [1]:

"What Groupon is doing is something that no other tech company has done in
recent memory--made a real run at securing a big chunk of the SMB
market...[T]o put that organization in place is going to take a ton of cash."

Groupon might be after SMBs, but what kind of sales team can they purchase
with $155 million? (Serious question, not rhetorical).

[1]
[http://www.theatlantic.com/technology/archive/2010/12/what-g...](http://www.theatlantic.com/technology/archive/2010/12/what-
groupons-doing-that-google-couldnt/68648/)

~~~
aaronblohowiak
Yet another case where there is a liquidity event for the capitalists but not
for the programmers. The promise of "generous equity" as a part of the
compensation package remains a raw deal for non-founders.

~~~
mmt
_"generous equity" as a part of the compensation package_

I see this in job postings occasionally, and it always strikes me as the Lady
Protesting Too Much.

Just tell me an order of magnitude of percentage ownership, and _I'll_ be the
judge of whether or not it's generous. I have yet to experience anything but
the latter, which isn't surprising if the entire employee option pool is 10%
by itself and the founders take no dilution from new hires.

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mikek
The most interesting part of this story to me is that Jason Fried is on the
board of Groupon.

~~~
Timothee
I discovered that yesterday. It's been over a year (announcement:
[http://www.groupon.com/blog/cities/jason-fried-joins-the-
gro...](http://www.groupon.com/blog/cities/jason-fried-joins-the-groupon-
board-of-directors/)) and it wasn't a secret, but I was surprised that I
hadn't heard about it when it happened.

It does seem to clash with what 37signals discusses all the time regarding VC
funding. I know that their main point is to fight the default mindset of going
first to investors to fund you discovering what to really build, but
nevertheless, a huge funding round whose main objective is to have some
insiders cash out doesn't fit Jason Fried's perceived philosophy. (granted,
DHH might be the more vocal of the two about it)

~~~
lionheart
It might clash with his philosophy buy really, in Groupon's position, what
else can you do?

In my opinion, this is a perfect example of what's currently very broken with
the VC/funding model. Groupon is wildly successful, wildly profitable, and yet
it's investor can't get paid anything without the whole company having to do
this weird funding rigamarole.

In the old days they would have just gone public and everybody would be happy.
But with the latest regulations nobody wants to do that anymore. And they
don't want to sell their company, for good reason. So they're stuck.

What there really needs to be is some accepted, pre-defined method for
investors to profit from a successful company's cash receipts. That would
simplify this whole process, but I don't know how feasible that is.

~~~
drusenko
There is a way: it's called dividends. The problem is that dividends are
subject to double taxation: first at ~44% (Federal + CA) for the corporation,
then at the dividends rate for the individual, which is currently at 24.3%
(15% Fed + 9.3% CA).

Compare to a sale of stock, which is only taxed at 24.3%, and you can start to
see some of the advantages.

Another advantage includes being able to capitalize on a multiple of your
revenue/profit, instead of on a 1X every year, as well as continuing to put
the company's revenue towards growth instead of cashing it all out.

~~~
dy
I personally think dividends are a much more sane way to invest than stock
price alone. It seems to me that AAPL or GOOG are "priced" by investors mostly
based on archaic ties to dividend models when in fact, it's really just hoping
that some sucker down the road will be willing to buy your shares at a higher
price. Dividends would allow us to price stocks using metrics tied much closer
to the underlying business rather than the perceptions of the business, which
in my mind would increase the healthiness of investing overall.

I understand the voting/bankruptcy rights of stock, but for most retail
investors, it seems to me that holding shares of Apple is really just a large
Ponzi-scheme (this has probably been debated on here ad nauseum).

~~~
mkramlich
I agree that dividends are a healthier and saner way to earn money from
investments. The problem is that as a little guy I have no control over
whether some company makes a dividend distribution, or even whether they make
a profit or not. I _can_ control whether I buy that stock in the first place,
and control whether and when I sell that stock. Therefore to make money in
this latter scenario, the stock price _must_ change (usually up, but if you're
shorting, down can work too) in order for me to make a profit. Thus it's in my
best interests for a stock's price to fluctuate, regardless of whether that
fluctuation has any relationship to the fundamental health or profitability of
the company. It's weird. It's dumb. But that's the way it is.

And that's just the incentive for the little guy who's an outside investor.
Imagine now you're a big guy with a lot of financial clout, and inside
connections, especially as far inside as being on the board or one of the
executives. You not only are incented to cause distortions to the stock price,
regardless of merit, but you also have greater power over the "upstream"
numbers (how to define profit, when to book profits/costs, etc.) and over the
media presence and general public's perception of the company. Greater
potential upside plus greater power to manipulate, is a recipe for bad things.

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sadiq
"Somebody also pocketed a $7.5 million “finder’s fee” for helping to put the
deal together."

That's interesting and a lot of money. Is it common?

~~~
kadavy
I've signed a finder's fee agreement before. All I would have had to do is
send an email intro to someone who eventually invested. I believe it was for
10 or 15% of what would have been raised.

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c2
You know investors have confidence in a company when they finance what
basically amounts to a executive cash out round.

~~~
ceejayoz
Investors had plenty of confidence in mortgage-backed securities, too.

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faramarz
I had to pinch and remind myself that very few Internet startups see money
like that thrown around, but at the same time, it goes to show how rewarding
success can be in this industry.

This is exciting!

