Fresh off the heels of Groupon's widely publicized Google rebuff, the discount e-commerce company has filed a certificate to authorize a $950 million Series G round of preferred stock. The certificate, which gives Groupon the capacity to raise $950 million, was filed on December 17. A Form D outlining the exact amount raised should be filed next week.
A Groupon spokesperson declined to comment on the filing.
The new round of financing gives Groupon a best-estimate post-money valuation of $6.4 billion, according to VC Experts Valuation and Deal Term Database.
There are a few key differences in terms and pricing between the Series G and its Series F, raised in April. The $135 million Series F, led by Digital Sky Technologies, was priced at $32.12 per share and was junior in liquidation preferences to all preferred shares. This round is priced $.53 less, at $31.59 per share and is senior to all. The latest filing also increased the authorized shares of voting common to 250 million shares, and if all of them are issued, Groupon's valuation could be as high as $7.8 billion. The financing comes just weeks after Groupon's rejection of Google's $6 billion buyout offer. Groupon gave no official reason for the rejection, though reports speculated pricing, strategy and anti-trust issues were to blame.
Groupon CEO Andrew Mason has tamped down speculation over IPO plans, emphasizing overseas expansion instead. And now we know how they plan to finance that expansion. Chicago-based Groupon became a VC darling after turning a profit in just eight months of existence. Fast forward two years later, and the company's annual run rate is estimated at between $800 million and $2 billion. Previously Groupon had raised $169.8 million in venture backing from an A-list group including Digital Sky Technologies, Battery Ventures, Accel Partners and New Enterprise Associates. It's last round of funding was $135 million in April 2010.
Download the Groupon Certificate of Incorporation
COMMENTARY: I have often been critical of some of the valuations for certain startups, namely Facebook and Twitter, now we find out that Groupon is doing a Form D filing to raise $950 million. That's quite a sum for a Form D. Still, Groupon is a private company and their estimated annual revenues are not published, so it's difficult to determine whether its new valuation or post-money cap of $6.4 billion is real or just another wild guess on the part of VC's and blogger's like myself.
The biggest issue with Groupon is that many experts believe that their business model is not sustainable over the long run. One glaring fact that stands out, which I wrote about in a previous blog post, is that 40% of their customer's have complained they lost money listing their promotional offers on Groupon, and that they would not be coming back. That's quite an attrition rate, and clear evidence that something is not right with their revenue model.
Having said this, Groupon is still the largest group buying site on the Web, and it has plans to get even bigger, expanding its concept internationally to both Latin and South America and Europe, hence the need for more capital, and lots of it.
The nation's high unemployment rate, drop in consumer confidence, and weak recovery (if there ever was one) has created a huge demand for discount coupons and group buying, the latest online promotions craze.
Another concern of mine, which I failed to mention in previous blog posts, is what happens when the economy completely turns around. Will consumer's continue to look for a deal? Many experts say consumer frugality is here to stay, so it certainly appears that Groupon and Groupon-wannabe's have a secure future.
It's hard for me to criticize the new $6.4 billion valuation. After all, Google did offer Groupon management a similar amount, and they turned it down because of anti-trust concerns.
The ability to sell a Form D is difficult at best, but I have a feeling that the Google Offer is going to be a huge selling point for Groupon. I bet there are dozens of broker's willing to kill to broker that Form D raise.
Courtesy of an article dated December 28, 2010 appearing in VC Experts
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