Groupon has revealed its financials as part of itsfiling with the SEC to go public. As a result, we can finally take a peek at the how company is using its more than $1 billion in recent funding.
A look at the statement reveals that Groupon raised $1,098,200,000 across its Series F ($135 million) and Series G ($946 million) rounds, including a follow-on investment of $17.2 million from Howard Schultz and affiliates.
Altogether, $946.8 million, or roughly 86% of the funds raised across the three investments, was paid out to Groupon directors, officers and stockholders. Just $151.4 million was retained by the company to use as working capital and for general corporate purposes.
Groupon co-founder and CEO Andrew Mason was one of those cashing in his shares. He first took $17,931,440 off the table in the Series F round, and latter grabbed $10 million in the Series G round. Meanwhile, Groupon co-founder Eric Lefkofsky’s 600 West Partners and Green Media — LLCs he co-owns with his wife — cashed in shares for a combined total of $381,904,359.
With all that cash taken off the table and so little retained for working capital, Groupon needs the $750 million it will raise in the IPO offering to continue to fuel operations. Clearly, the company is eager to file the IPO to keep its cash flow positive and to fund operations.
Here’s Who Cashed Out:
Series F
“In April 2010, we issued 4,202,658 shares of our Series F preferred stock to a group of third-party investors in exchange for $135.0 million in cash, or $32.12 per share. We retained $15.0 million of these proceeds for working capital and general corporate purposes. We used the remaining $120.0 million of these proceeds to redeem voting and non-voting common stock from our existing stockholders at a purchase price of $5.3537 per share (on a post-stock split basis). In connection with this redemption, the following of our directors, officers and 5% or greater stockholders (or their respective affiliates) of the Company received the payments listed below:”
Series G
“In December 2010 and January 2011, we issued 30,072,814 aggregate shares of our Series G preferred stock to a group of third-party investors in exchange for $946.0 million in cash, or $31.59 per share. We retained $136.2 million of these proceeds for working capital and general corporate purposes. We used the remaining $809.8 million of these proceeds to redeem voting and non-voting common stock from our existing stockholders at a purchase price of $15.795 per share (on a post-stock split basis), and Series D preferred stock and Series E preferred stock from our existing stockholders at a purchase price of $31.59 per share. In connection with this redemption, the following of our directors, officers and 5% or greater stockholders (or their respective affiliates) of the Company received the payments listed below:”
Non-Voting Common Stock Investment
“In February 2011, we issued 1,090,830 shares of our non-voting common stock to Howard Shultz and his affiliates, Theodore Leonsis, Matt McCutchen and Placido Arango in exchange for $17.2 million in cash, or $15.795 per share. We retained $0.2 million of the proceeds for working capital and general corporate purposes. We used the remaining $17.0 million of these proceeds to redeem non-voting common stock from our existing stockholders at a purchase price of $15.795 per share. In connection with this redemption, the following of our directors, officers and 5% or greater stockholders of the Company received the payments listed below:”
COMMENTARY: We used to read about the huge war chest that Groupon had accumulated, but now we know that only only 14% of the nearly $1.1 billion raised, went into Groupon's corporate coffers. The rest went to redeem the stock of officers, directors and outside investors. I was going to point this out myself when I reviewed Groupon's S-1, but Stu Haugen beat me to the punch and I applaud and thank him.
After a further review of Groupon's financial statements in their IPO filing, it is very important to point out that Groupon has a severe working capital situation. In effect, it is having problems meeting its current debt obligations.
At the end of December 31, 2010, Groupon had a working capital deficit $209 million, the different its current assets and current liabilities as follows:
- Current Assets: $173.8 million
- Current Liabilities: $370.4 million
- Working Capital Deficit: ($209.2 million)
Groupon's working capital deficit got worse by the end of March 31, 2011, when it reported a net loss of ($113.9 million). This would mean that Groupon's working capital deficit at the end of March 31, 2011 was approximately ($323.1 million).
Groupon's current liabilities as of December 31, 2010 were as follows:
- Trade Accounts Payable: $57.5 million
- Accrued Merchant Payments: $162.4 million
- Accrued Expenses: $98.3 million
- Other: $52.2 millon
- Total Current Liabilities: $370.4 million
A further examination of Groupon's assets and liabilities shows that it does not have any long-term investments like U.S. bonds or treasury notes that it could cash in an emergency to cover its current debt obligations.
In reality, Groupon is using its creditors to finance its operations. This is not a very good situation to be in. It owed its merchants a total of $162.4 million at the end of December 31, 2010. This is the 50% share of Groupon sales owes to its merchants. This number was probably in excess of $200 million by the end of March 31, 2011, and its anybody's guess what the number is presently.
What is even more alarming is that of the $1.1 billion in proceeds from the sale of its Series F, G and non-voting common stock, officer's received $42 million. Groupon CEO Andrew Mason personally received $27.9 million from those stock sales. Retiring directors John R. Walter and Jason Fried received $27.9 million and $557,721 respectively for a combined total of $28.5 million.
This is a recap of what went into the pockets of Groupon's Executives and Former Directors:
Groupon Executives
- Andrew Mason, CEO: $27.9 million
- Kenneth Pelletier, CTO: $8.6 million
- Brian Totty, Sr. V.P. Engineering and Operations: $655,019
- Robert Solomon, Former President & COO: $4.9 million
- Total Groupon Executives: $42 million
Former Groupon Directors
- John R. Walter: $27.9 million
- Jason Fried: $557,721
- Total Former Directors: $28.5 million
Total Groupon Executives and Directors: $70.5 million
Look, I am not saying that Groupon's executives and former directors are not entitled to some liquidity, but when they are running a working capital deficit and owed creditors and merchants over $318.2 million at the end of December 31, 2010, and probably well over $400 million by the end of March 31, 2011, these actions are considered obscene and makes you questions their ethics and character.
Without an IPO, Groupon would need to raise more capital from outsiders (probably and H round) and risk further dilution, or raise short term debt just to stay current with its trade creditrs and merchants.
So there you have the complete story of where all that $1.1 billion went--$70.5 million went to Groupon executives and former directors, and the $876.3 million went to investors. Groupon's creditors and merchant's got shit.
I don't now what arrangements Groupon has made to pay its outstanding trade creditors and merchants, but we still don't know how much of that $750 million they seek to raise from their IPO will go into the corporate coffers or to cashout investors, executives, employees and directors.
In conclusion, it does make you wonder whether those Groupon investors, executives and former directors that cashed in their shares prior to their IPO filing saw the handwriting on the wall and were "bailing out". I thought that in the event of a bankruptcy liquidation shareholders got paid AFTER creditors. I guess, in the case of Groupon, that ain't necessarily so. That's quite a Daily Deal, wouldn't you say?
Courtesy of an article dated June 3, 2011 appearing in Stu Haugen's Blog and Groupon's SEC Form S-1 Registration Statement
So there you have the complete story of where all that $1.1 billion went--$70.5 million went to Groupon executives and former directors, and the $876.3 million went to investors. Groupon's creditors and merchant's got shit.
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