The checkered past of Groupon's chairman

http://tech.fortune.cnn.com/2011/06/10/groupon-eric-lefkofsky/

by bjonathan • 15 years ago

155 68 15 years ago

tech.fortune.cnn.com

nh• 15 years ago

Here's a 2 minute video about Lefkofsky by Bloomberg

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

Luyt• 15 years ago

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

suking2• 15 years ago

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?

bcrescimanno• 15 years ago

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.

suking2• 15 years ago

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

ookblah• 15 years ago

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.

Hm.

eli• 15 years ago

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.

justin_vanw• 15 years ago

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

saeidm• 15 years ago

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.

WinstonW• 15 years ago

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

jonnathanson• 15 years ago

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.

rokhayakebe2• 15 years ago

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.

imjustatechguy5• 15 years ago

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.

sunchild5• 15 years ago

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

breck3• 15 years ago

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

http://www.lefkofsky.com/blog/when-you-dont-know-what-to-say

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.

dsplittgerber• 15 years ago

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.

ChuckMcM2• 15 years ago

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.

breck3• 15 years ago

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. :)

imjustatechguy5• 15 years ago

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.

breck3• 15 years ago

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?

99992• 15 years ago

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.

antidaily• 15 years ago

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

mmaunder• 15 years ago

http://www.ustream.tv/recorded/9876278

What's bizarre?

Jun8• 15 years ago

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.

Create2• 15 years ago

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

http://www.youtube.com/watch?v=Uz2j3BhL47c

Tycho2• 15 years ago

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.

rokhayakebe2• 15 years ago

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.

imjustatechguy5• 15 years ago

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.

truthout• 15 years ago

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.

MatthewPhillips• 15 years ago

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.

louislouis5• 15 years ago

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

ashbrahma• 15 years ago

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

louislouis5• 15 years ago

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.

99992• 15 years ago

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

http://venturelevel.com/post/4798285366/why-groupon-sucks-fo...

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.

louislouis5• 15 years ago

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?

cellis• 15 years ago

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.

louislouis5• 15 years ago

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

lurker19• 15 years ago

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?

louislouis5• 15 years ago

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

dr_• 15 years ago

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

http://www.nytimes.com/2010/11/18/business/18sbiz.html

imjustatechguy5• 15 years ago

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.

MediaBehavior• 15 years ago

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)

cte• 15 years ago

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.

shareme• 15 years ago

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...

The checkered past of Groupon's chairman

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