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The checkered past of Groupon's chairman (cnn.com)
155 points by bjonathan on June 10, 2011 | hide | past | web | favorite | 68 comments

Sidenote: Anyone else catch (Groupon director) Brad Keywell's talk at MidVentures Chicago last year? All that Ayn Rand stuff?? Bizarre.

I was there. His talk was OK (best time to plant a tree is 20 years ago, etc.) if a little too buttoned up. Must have filtered out the Rand part. Steve Hoffman's talk was much better, I think.

the Ayn Rand stuff doesn't work ... it didn't, not even for her.


That is one of the most ridiculous and tenuous pieces of television I've ever seen from the BBC. It's almost like Curtis plays random association games then tries to impose a historical narrative on it.

do you think Ann was happy? are others whom have to live with stuff she was used to justify? btw Curtis is aware of random association games and their abuse (see Century of the Self). He is also aware of history (see blog entry about Eden/China, Libya, Iraq, Kosovo etc. -- he always puts it in context)

If Curtis' latest documentary series was a courtcase, the defense would be going blue in the face shouting 'objection!' after virtually every line and the judge would likely just make a sign saying 'sustained' to hold up. Almost every assertion/connection he makes or insinuates is logically untenable. Consider the whole leap from 'some' Silicon Valley entrepreneurs following Rand, to the NY/London financial industry putting too much faith in computers. Or the supposed direness westernisation has brought about in south-east Asia - focussing on a single crisis and ignoring the broader picture. Or statements he makes about things so long passed that they somehow shouldn't need evidence, eg. the great depression 'was caused by greed.'

Basically he picks a bunch of ideas or voices, arbitrarily decides they had utmost influence on history, giving no evidence for this, then connects them to cherry-picked historical events, omitting any events that would contradict the narrative he wants to present, and also any counterpoints within the ideologies he's 'debunking.' If anyone seriously finishes watching those shows and takes it all at face value, they have some serious epistemological issues.

Was Rand happy? Think how ridiculous this is: all the stuff she accomplished in her life time, and the documentary focuses on one spell of unhappiness stemming from a personal betrayal, to paint her as a 'failed invidividual.' Think of all the difficulties other philosophers/writers ran into - yet we let their ideas stand on their own merit. Of course Rand was not happy every single day, and there's nothing about her philosophy that suggests she ought to have been, but she was (rightly) satisfied with her life.

Article on Techcrunch today about a retailers view point on Groupon: http://techcrunch.com/2011/06/09/groupon-single-worst-decisi...

Truthed. My friends company struck a deal with groupon in a strategic attempt to get more exposure, even though they sold their products at a loss. Yes their website got a large traffic spike on the day it hit groupons front page, but no, none of the traffic stuck. Just FYI.

There have been quite a few of these articles now. This one was both informative and somewhat damning:


Now that the social buying model is better understood, I feel like merchants are in a much better position to determine whether or not a Groupon deal actually makes sense for them.

Lefkofsky's only talent seems to be pumping valuation and exiting on top.

Makes you wonder why he didn't exit when he had a chance at $6 billion. I doubt groupon will ever see that type of valuation again considering how terrible their coupons have become and how natural competitors in the space like local papers and yelp are beginning to gain traction.

nh posted a video below which states that based on a $25B valuation, Lefkofsky will grab $5.3B, as he owns 22 percent of Groupon. That's a hell of a lot more than he'd have made in the Google deal.

Courtesy of nh: http://www.youtube.com/watch?v=D_UYtYAChi8

Isn't it only potentially a hell of a lot more, if Groupon stock holds its value, as opposed to cash/GOOG?

Groupon stock only has to hold its value long enough for his lockout (usually 6 months) to end. It's usually not hard to do that - when things come crashing down, it's usually a few years in the future, not months.

Not really. Unloading 20% of a company without telling anyone is both hard and, I think, illegal (as an exec). This is one of the reasons Bill Gates' stock sales are so consistent is to keep the market from freaking out when he sells stock. (Ohmigod, Bill sold stock! Oh wait, he's done that every month for 10 years... nevermind.)

Lefkofsky might be able to hedge against the decline of the stock, but hedging 20% of a big company (especially because it'd be difficult to build a portfolio which replicated Groupon's situation and risks) is a pretty tall order.

All that said, I tend to agree with your sentiment...

Or considering how Facebook could basically annihilate Groupon in the blink of an eye if it ever decided to get into that business model. Not only are Groupon's financials highly questionable, but its position is practically indefensible and does not contain any real "switching costs" to keep users locked in or loyal.

Facebook is already in this business with Deals: http://www.facebook.com/blog.php?post=446183422130

Give the man some credit for starting 2 companies that went public and are profitable, selling another one for nearly a quarter of a billion, and now has been involved with the fastest growing startup in terms of revenue.

He seems like a smart man, but I also think that his cashing out of hundreds of millions of dollars worth of stock pre-IPO doesn't have a good explanation unless he has reservations about Groupon's long-term viability. Groupon's numbers are pretty horrible and the space is getting more and more competitive.

It is because I think he is smart that I think his cashing out to the extreme is a very bad sign. Otherwise, he should have kept the stock and been significantly richer upon the IPO of Groupon.

By that measure, the cold-callers who sold mortgage derivatives to pensioners are the greatest entrepreneurs in the history of the world.

This is ridiculous to compare Groupon to mortgage derivatives.

This is what Groupon is guilty of so far:

1. Having such a profitable business model that everyone and their mom has launched a copycat or sub-niche clone in a fairly short time span. (Google, Facebook, Amazon, and countless other small players.)

2. Bowing out of a Google acquisition over regulatory concerns that arguably would have derailed their growth.

3. Re-investing what would have been profits right back in to the business instead of sitting on them.

4. Letting early investors cash out early.

The competition in this space is brutal and the top players have seemingly bottomless pockets . Without an IPO Groupon will fail. With it, they have a chance of being around for a while.

The "quality of deals" issue is separate. Just like a novice advertiser can blow a million dollars on display advertising and have nothing to show for it, the novice business can screw up their Groupon/Living Social/any daily deal site offer. That doesn't mean there is something wrong with the model. This is a two sided equation in a marketplace with incredible consumer demand -- its not a pyramid and with or without Groupon it will be around for a long time.

Having such a profitable business model

Well, that's not true. They spend $1.43 for every $1 in revenue.

You completely missed my point, which was that the ability to make money is not, in and of itself, the only measure of success as an entrepreneur.

Actually, it generally is how the world keeps score. Unconventional companies like 37signals might not brag about growing headcount or offices, but the reason people take them seriously is because they're lucrative.

You're seriously taking the position that making money is the sole measure of business success? Legality, morality, etc. are irrelevant? Good for you, I guess.

You want to talk about baseball, we score that in runs. That's all.

I'm sorry that you have such a cynical view of the world. Fortunately, many people (including people who make decisions about laws and regulations) disagree with you.

To those who downvoted me all over this thread:

1. Remember Enron? Lehman? Arthur Andersen? WorldCom? Parmalat? Countrywide? I could go on. I suppose the rule is "you're an amazing entrepreneur (unless you get caught)"?

2. It's you and me who pay the price when these companies collapse.

How much skepticism will need to be raised before investors are deterred from funding "a possible bonanza"?

I also wonder how much Groupon is riding high based on the reasoning, "Well, if _Google_ thought highly enough of it..."

(forgetting that Google was willing to bet on it _on_condition_ that Google had control/oversight of the operation)

Here's a piece of the S1 that I haven't yet seen cited:

"To demonstrate the economics of our business model, we have compared the revenue and gross profit generated from the North American subscribers we acquired in the second quarter of 2010, which we refer to as our Q2 2010 cohort, to the online marketing expenses incurred to acquire such subscribers. The Q2 2010 cohort is illustrative of trends we have seen among our North American subscriber base. The Q2 2010 cohort included 3.7 million subscribers that we initially spent $18.0 million in online marketing to acquire in the second quarter of 2010. In that quarter, we generated $29.8 million in revenue and $12.8 million in gross profit from the sale of approximately 1.2 million Groupons to these subscribers. Through March 31, 2011, we generated an aggregate of $145.3 million in revenue and $61.7 million in gross profit from the sale of approximately 6.3 million Groupons to the Q2 2010 cohort. In summary, we spent $18.0 million in online marketing expense to acquire subscribers in the Q2 2010 cohort and generated $61.7 million in gross profit from this group of subscribers over four quarters."

A typical cohort that returned >3x what it cost? Sounds like a good business to me.

You are missing some things:

1. Costs to gain subscribers goes up each quarter 2. Costs to retain subscribers goes up each quarter 3. Marketing costs to get deals for subscribers goes up each quarter

Costs to retain subscribers is missing..what part of loss is that? Do not know have not finished reviewing the S1..

and other difference compared to Amazon..Amazon founders did not attempt a cash out during the loss years...

This article digs up some interesting events from the past, but it has a negative spin so definitely also read Lefkofsky's own words:


He seems both honest and it's evident he's determined and learns a lot from experience.

He's clearly the type of entrepreneur that VCs always ask for: the "go big or go home" type. Seems like his early investors didn't grasp that.

I wonder if he'll distribute any of his Groupon proceeds to some of the investors who backed him early. The ones who didn't turn on him when things went south, anyway.

There is a clear difference between "go big or go home" and "pump it & dump it". I am astonished people don't seem to see the difference.

There is a saying that when you scheme to make yourself and the company successful its called 'leadership' and when you scheme to make only yourself successful its called 'politics.' (some cynics add that if you make the company successful but not yourself its called 'stupidity' :-)

The exhortation 'go big or go home' is clearly a challenge to 'win' at all costs. How people internalize that challenge reflects on their character and their moral compass. Its all about what someone considers and 'acceptable cost' at that point.

I think that people are aware of the distinction, but they feel that Groupon, while it might have been a "go big" hope, it is distinctly leaning towards the "go home" while at the same time it is trying to IPO. This means that some now interpret it as a "pump it & dump it" scheme, especially given that the major founders are selling stock by the hundreds of millions of dollars.

Sure, Groupon could go bust.

Me, I have no idea what will happen.

On the one hand, Groupon resembles a lot of fads. On the other hand, I've admired their execution and innovation over the years.

I can't predict whether they will succeed better than a coin flip.

If you can, put some money on it. :)

I'm surprised this is getting downvoted.

Before I posted it, I did a tiny bit of research on InnerWorkings and ECHO. They are the 2 main companies Lefkofsky has been involved with in the past 10 years. Both are public companies, with around half a billion in annual revenue each, both are profitable, and both seem to have many large, satisfied customers.

If you're going to judge an artist, would you look at their recent paintings or what they made in elementary school?

People downvote when they don't agree with what you said, which is not what the downvote is really for (filtering unhelpful posts), but there you go.

Thanks for the useful links.

Here's a 2 minute video about Lefkofsky by Bloomberg


Heh, I wish I had this prowess to make millions of dollars ;-)

It's a joke that stocks can be diluted afterwards by insider offerings. Thats almost a license to print money. Surely theres a law for this scam?

Thing is, share dilution is not much different from giving an employee or vendor a huge pile of money in exchange for labor that turns out not to generate much revenue. It is bad for business (and will be reflected in a share value drop), but how can you prove it is fraud?

Hmmm... It's rather convincing when you put it that way.

Yes, it's called The Law of Supply and Demand. Once they increase the supply of the stocks too much, the demand will go down and they'll have to go back to having 3 summer homes instead of 4, and 2 private jets instead of 3.

Yes but shouldn't the demand for stock be translated into the stock price going up? And not a backdoor to dilute the cake?

Fine, but before the negativity surrounding Groupon, he's considered someone with an "impressive entrepreneurial track record"


You mean before people started to look into him more closely? I also was very impressed with Groupon before they released their numbers and the amount of shares sold by insiders prior to IPO.

More information led me to change my mind.

My hope is that Groupon files an new disclosure in a couple months that has better numbers. That is the real solution that everyone is waiting on now.

Our minds can be changed again, just like they were changed with the first IPO filing. From my perspective, this would be a very mature and robust solution to the problem at hand.

I don't know if this info is limited to tech communities or what... Is the general consensus that this IPO seems very scammy outside of the tech world?

I think it's mostly the general consensus--period. This has boiler-room style "pump and dump" written all over it; yet the big investment banks have been getting away with running IPOs this way for years.

Groupon just happens to be the latest example.

Do you think that us living in this time period would help mitigate that?

I mean back in 2000 I was too young to understand all that, but was the bubble partly due to misinformation by of the public? I feel like with all these stories about the IPO being cast in a negative light, and how connected we are now w/ information, the average person would be much more careful.


I remember the dot-coms. I wouldn't say I was all that savvy then (or now), but my take is it feels very similar now.

It really didn't seem like there was a lot of out-right deception then, or even misinformation. Companies will always say they're great. There's enough information out there to inspire some skepticism if you're open to it.

I'm no professional at this, but my uneducated observation is that, then and now, there's a lot of money to be made, and people are willing to risk riding the wave as long as they think they can get out before the crash. It's just simple greed. Nobody really believes these companies are actually worth what they're being pitched at; but "if I can quickly double or quadruple my investment, then get out clean, why should I miss out? After all, I'm smarter than everyone else..."

You've described the very definition of the "greater fool theory" [1]. This is investing based on momentum rather than value (such as the price to earnings ratio). The intent is to sell to another "fool" after mading a profit. Of course it all comes tumbling down when the market runs out of fools [2].

[1] http://en.wikipedia.org/wiki/Greater_fool_theory

[2] http://en.wikipedia.org/wiki/Tulip_mania

more likely you've just grown up and are now experienced enough to see through the BS.

There's a generation ten years younger than you that doesn't.

It is called "irrational exuberance".


Not really misinformation, just a suspension of judgement.

Forget 2000, what about the real estate bubble? That didn't happen that long ago, yet nobody remembered 2000, and nobody remembers the last couple of years.

The main difference now is that the average person is not really gung-ho into the stock market, or hasn't been for the last few years, particularly with regard to buying/selling individual stocks.

Most of this stuff today seems to be 401k and IRA fund managers being fleeced by this and HFT.


Keep in mind, most of the 'investors' who didn't get too badly burned off of the dot com stuff after 2000, moved their money into real estate since the NASDAQ was comparatively 'in the shitter'.

Check out these great dotcom documentaries (both show meteoric rise and epic failure):



and this AWESOME business sci-fi book about the same time period:


I think the key with both was that there was a "plausible" explanation for why the bubble valuations made sense.

In the 2000s, you had the "New Economy" bullshit: The internet was changing everything and the most important thing was to start a company that carved out your niche of the New Everything. Profits or even cashflow fundamentals could wait until after the land-grab.

There was a kernel of truth of course, the Internet has changed a great deal. That's what made the argument sound plausible.

With the housing bubble, the argument was "real-estate never goes down," "the population keeps getting larger so demand always goes up." "houses are real things with real value."

Again there's a kernel of truth to the argument --- just enough to hide the reality of the bubble from people who don't take a hard look at the numbers with a critical eye.

And moreover, during 2000 as well as the housing bubble, very many people who participated believed there was a bubble. Goldman Sachs were long on housing derivatives for years before they went short in the final few months.

There's a lot of money to be made running with the herd in a bubble so long as you veer off before the herd goes off the cliff.

Pre 2000 there was less negative information. Little or no blogger type analysis of anything almost all information came from traditional news sources who ate up positive information. I know because I was able to manipulate them for publicity.

So there is more info now. But the only way that information out there helps is if it makes it to the traditional media which broadcasts it to the regular non-tech site reading public. And that appears to be happening actually.

I just keep thinking how many terrible articles can be written about them before the IPO is scrapped. Their numbers are a joke.

They can't scrap it. They are bleeding cash.

Actually they can, and yes they are bleeding cash and yes they are 'upside down' in the parlance, but if they lower the offering price and still can't get it fully subscribed they are stuck. They can go back to their investors for a bridge loan, or issue warrants, or try another private (probably down) round.

Two very interesting things have come out of Groupon's history so far, the first is that they turned down a $6B buyout (which seemed amazing to me at the time) and then they did a fund raise where most of the stock was insiders selling.

That particular combination makes me wonder if the buyout was rejected because the way money would have been shared around was stipulated by previous term agreements, and some of the investors didn't want that, so they did the series D or what ever it was which allowed them to funnel money to specific investors, so that now if they take a hair cut on valuation those investors are 'protected.'

So the fact that they are bleeding cash will force some sort of financial transaction to occur (buyout, bridge loan, chapter 11 bankruptcy), if they are having a hard time getting the offering fully subscribed they may be shopping the company around, and if they are doing that they are in a much weaker position than they were before.

I think every story I heard or read on the IPO at least mentioned the fact that they seem to be losing a fair bit of money.

I wish people stopped talking dirt about these guys and their IPO. Investors aren't being forced to buy the stock, consumers aren't being forced to buy groupons and merchants aren't certainly being forced to participate in their program.

While Lefkofsky is selling his stock at will, you should note that the CEO is holding on to most of his portion of the company.

Everybody and their cousin worries about their expenses, and that is totally understandable, but let us not forget how many acquisitions they have made in the past. If most of the money they have raised went into founders' pockets, then most of the income they have made went into buying other sizeable companies and paying some 7000 employees.

There are 15M small businesses in the US. Groupon made nearly $3B last year servicing only less than half a percent of those. For better or for worse, Groupon could be bigger than Google and turn a solid profit.

I think that investors should be informed about Groupon and its founders. It is especially important if there are issues with Groupon and its founders.

I was actually quite impressed with Groupon initially until I saw its numbers and that its major stockholders were cashing out hundreds of millions of dollars in stock pre-IPO. That raised with me huge alarm bells and it changed my opinion drastically.

My extreme leariness of Groupon is based on facts that I've learned as I used to be a fan, although a relatively uninformed one.

Every comment this account has made had been related to groupon. I think the tech giants are out bastetdize its IPO. The company is a top line revenue behemoth, unlike LinkedIn. Seems to have a lot of potential if they increase profit margins. A lot.

It appears that you are strongly implying that I am part of a conspiracy. Can you outline in more detail this conspiracy that you believe I am involved in?

Are Groupon users loyal to Groupon, or do they also use other email list coupon sites? I ask because if the answer is "no", I'm not seeing how Groupon can be that big at all. Google brought something to the table that others could not; Groupon clearly doesn't. Groupon only has on it's competition a small head-start in sales reach. Unless they can some how get exclusivity on small businesses, they aren't doing anything noteworthy not also being done by Living Social or Google or Facebook.

$3B profit or revenue? Theres a big difference. Revenue is just song and dance to look good in reports for investors.

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