

Battle In The Boardroom: Why Groupon Probably Paid Off Its Early Employees - dshipper
http://dshipper.posterous.com/battle-in-the-boardroom-why-groupon-probably

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dpapathanasiou
What I'd really like to know is what the G round investors were thinking: did
they not expect Groupon to use that round to pay off early investors and
employees, or was that part of the plan?

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jordanb
The G round investors are buying their way into the IPO.

They believe that the IPO will be huge regardless of Groupon's health, and
there's a lot of money to be made on it, so they're purchasing -- from the
early investors -- access to pre-IPO stock.

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haberman
If that's true, it lends more weight to the charge that the whole thing is a
Ponzi scheme (later investors paying off early investors).

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timr
That's not the definition of a Ponzi Scheme. A Ponzi scheme is a confidence
scam that requires deception. This is a bubble.

The investors in the last round _knew_ that the money was being used to cash
out the early shareholders. No one is claiming fraud.

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rooshdi
Yes, but the G round investors still have a personal stake in ensuring the
public are deceived into buying those IPO shares so they themselves can turn a
profit. Deceiving is deceiving either way you cut it.

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timr
How can they be "deceived", when the entire internet is talking about it?
Nobody is hiding anything; they filed an S1, just like _every other public
company_.

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rooshdi
Yes, but Groupon is deliberately excluding certain expenses, such as online
marketing, from their CSOI in order to inflate their profitability. Excluding
this figure seems quite deceiving since their figures imply they don't rely
heavily on online marketing when, in fact, they do. They even contradict
themselves in their filing by stating, "We spent $179.9 million on online
marketing initiatives relating to subscriber acquisition for the first quarter
of 2011 and expect to continue to expend significant amounts to acquire
additional subscribers." Well if they are expected to continue to expend
"significant" amounts to acquire subscribers, why are they excluding those
costs in the CSOI?

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timr
If you can make this argument, so can potential investors. It isn't a secret.

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rooshdi
Isn't a secret...to some. If Groupon knew all potential investors would come
to these same conclusions, why inflate the CSOI figures in the first place?
They may believe that their marketing costs may not stay high once they've
locked users into their e-mail list, but there is a growing influx of
companies diluting the concentration of their daily deals such as
LivingSocial, GiltCity, BuyWithMe, and countless other clones. Even Google
Offers and Facebook Deals are entering the market with a huge network at their
disposal. With this growing competition, Groupon is going to need to continue
spending more on marketing well into the future in order to replace lost sales
and a deteriorating retention rate. Their marketing costs are going to
continue to be significant and, until they prove otherwise, they should report
them as such.

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hullo
Drilling into his specifics, one issue is that they didn't actually keep the
team together (and may well not have wanted to, given the comp package the new
COO at least got), the COO and CTO both left in March.
[http://money.cnn.com/2011/06/03/technology/groupon_ipo_quirk...](http://money.cnn.com/2011/06/03/technology/groupon_ipo_quirks/index.htm)

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dshipper
Groupon raised the 1 billion in January which means that both the COO and CTO
stayed long enough to cash in on the Series G round and then left.

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thisisnotmyname
Does that indicate that they thought the company's value was peaking?

More importantly, are we actually at the point where blogs in which a guy is
admittedly just making things up about Groupon makes it to the front page?

