Prominent Groupon investors fleeing company
BY SANDRA GUY Business Reporter email@example.com August 20, 2012 8:44AM
Groupon headquarters in Chicago.
Updated: September 22, 2012 6:15AM
As Groupon hit a new stock-price low of $4.65 on Monday, 77 percent below its IPO price, regulatory filings show several savvy and early-stage investors have bailed out of the once-golden daily deals site.
Chief among them is Web innovator Marc Andreessen, a University of Illinois graduate who co-founded Netscape and has since built his influence in Silicon Valley by investing in early-stage Internet companies.
Andreessen Horowitz, Andreessen’s firm that invested a crucial $40 million of $946 million that Groupon collected from investors before it went public, has sold all of its 5.1 million shares, according to the Wall Street Journal.
Shares of Groupon fell 2.1 percent Monday from its previous all-time low on Friday.
Andreessen Horowitz’s $40 million investment netted the company 5.1 million Groupon shares, according to Securities and Exchange Commission filings and analysis for the Sun-Times by The Delves Group, a Chicago-based executive compensation consulting firm specializing in technology.
Andreessen Horowitz sold at about $10 a share after insiders were freed to sell their holdings on June 1.
The pull-out netted Andreessen Horowitz an estimated $11 million, according to the analysis.
Coinciding with Andreessen’s pull-out was a huge jump in the numbers of Groupon shares being “shorted” by investors who hope to gain if the stock falls even farther, as industry experts increasingly question whether Groupon can keep customers from succumbing to deal fatigue and whether it can find a new growth engine.
Short sellers held 24 percent of Groupon’s 225 million shares held by public investors, according to the latest public filing on July 31. That was up 135 percent from May 31, the day before Groupon’s stock “lockup” expired.
Other early-stage investors who have dumped Groupon’s stock include:
◆ Battery Ventures, which first invested $35 million to buy 1.09 million preferred Groupon shares on April 16, 2010, and spent another $23 million to buy 728,000 shares on Jan. 11, 2011.
◆ Swedish investor Investment AB Kinnevik sold off its 8.4 million shares for $81.3 million, or about $9.24 a share, in mid-June.
◆ Hedge fund Maverick Capital, which originally bought 1.6 million preferred shares on Jan. 11, 2011, for $50 million and increased its stake to 6.3 million shares, has now cut back to 1.98 million shares.
◆ Fidelity Investments, which initially invested $100 million to buy 3.2 million preferred shares on Dec. 17, 2010, and held as many as 20 million shares at one point, cut its holdings to 13.2 million shares.
Other early-stage backers now hold 5 percent or less of Groupon’s stock. Among the more prominent are Digital Sky Technologies of Russia, which invested $100 million for 3.1 million preferred shares on April 16, 2010, and then added another $51 million to buy an additional 1.6 million shares on Jan. 11, 2011.
“This can only be a bad sign because the inside and early investors are privy to more information than we are,” said Larry Chiagouris, a marketing professor at Pace University in New York City. “Unless Groupon can find a way to jumpstart its business, it is more likely to face smaller margins, fewer deals and fewer employees, and eventually may get a buyout offer much less than what it is today.”
Groupon, based in the old Montgomery Ward catalog warehouse at 600 W. Chicago, now has a market capitalization of $3.1 billion, or half of Google’s $6 billion late-2010 buyout offer.
Other investors are holding on, with some even buying more, despite the increasingly gloomy outlook, according to the data analysis.
◆ Morgan Stanley, one of the chief underwriters of Groupon’s IPO, added 19.3 million shares, for a total of 37.8 million.
◆ Accel Growth Partners, which started with a $20 million investment on Nov. 17, 2009, for 2.9 million preferred shares, now holds 33.2 million shares, or 5.1 percent of Groupon.
◆ New Enterprise Associates, which owns 87 million shares, or 13.5 percent of Groupon’s shares.
◆ Kleiner Perkins Caufield & Byers, which holds its stake of 8.2 million shares from its initial $65 million investment.
◆ Oliver and Marc Sanwer, brothers heralded for starting a Groupon clone in Berlin, Germany, continue to hold a 6 percent stake, or 39.2 million shares.
Of the $946 million Groupon raised before it went public Nov. 4, 2011, $810 million was used to pay off early investors and founders, according to earlier SEC filings.
Groupon’s founding investors, entrepreneurs Brad Keywell and Eric Lefkofsky and their families cashed out $382 million and $156 million, respectively, through share sales and other private transactions, according to media reports.
The two then made billions on paper in Groupon’s IPO, with CEO Andrew Mason’s share initially valued at $1.23 billion, Lefkofsky’s at $3.37 billion and Keywell at $1.08 billion. They have not sold shares since the lockup ended.
The Wall Street Journal on Monday quoted unidentified sources as saying Andreessen and other influential people urged Groupon’s board not to go through with its plans for an initial public offering because they feared it was too early for Groupon to undergo intense public scrutiny about its business model. The Journal reported that co-founding investor Eric Lefkofsky and unnamed others “were pushing” Mason to go public.
The others named by the Journal as urging Groupon to hold off on its IPO were Starbucks CEO Howard Schultz, who resigned from Groupon’s board in April, and Silicon Valley investment gurus Mary Meeker and John Doerr, partners at Kleiner Perkins Caufield & Byers.