Analysts are debating whether or not Groupon’s capital raise sets the record for the largest raise by a private company in a single venture capital round. However, until it is revealed how much of the financing was new equity capital, we cannot know for sure. Groupon did not detail how the company plans on spending the money, besides using it to “fuel global expansion, invest in technology, and provide liquidity for employees and early investors.” In the past year, Groupon has expanded from 1 to 35 countries, launched in almost 500 new markets, up from 30 markets in 2009, increased subscribers by 2500% reaching over 50 millions users, saved consumers 1.5 billion dollars, and worked with 58,000 local businesses, serving over 100,000 deals worldwide. The Company’s success stems from its ability to offer small businesses that don’t usually advertise online a way to reach local markets. Their success has attracted big investors, including Andreessen Horowitz, Battery Ventures, Greylock Partners, Maverick Capital, Silver Lake, Technology Crossover Ventures, and DST.
Groupon, the site that sells daily coupons for local businesses, has raised $950 million from investors, the largest amount raised by a start-up.
The investment follows Google’s $6 billion bid for Groupon, which fell apart last month. The list of new investors in the company include some of Silicon Valley’s hottest names, like Andreessen Horowitz and Kleiner Perkins Caufield & Byers.
Groupon, which is just over two years old and based in Chicago, has quickly catapulted into the ranks of the top tech companies. By selling coupons, like ones that offer $20 worth of books for $10 at a local bookstore, it gives small businesses a way to advertise and find new customers without spending money upfront.
“They’ve cracked the code on a formula for how to basically give access on the Internet as a marketing channel for offline merchants,” said Marc Andreessen, co-founder of Andreessen Horowitz and a veteran of Silicon Valley. “It’s a very, very big deal because there are a lot of offline merchants that have not been able to use the Internet as a marketing vehicle.”
Mr. Andreessen said Groupon can play the same advertising role for small, offline businesses, like dry cleaners and cafes, that Google’s AdWords has played for online businesses.
“That’s why Google was interested,” he said.
Some analysts have questioned whether Groupon, whose revenue has been zooming upward, can continue to grow at the same rate. Local businesses usually heavily discount their products on Groupon, so they may not want to sell coupons more than once or twice, and some businesses have complained that they lost money on Groupon and that the people who bought the coupons did not become repeat customers.
But in an interview last week, Rob Solomon, Groupon’s president, said there were so many small businesses worldwide that Groupon can continue to grow rapidly, expanding beyond businesses like restaurants and yoga studios to law firms, for instance. He also said the company planned to offer other services to small businesses, like tools to manage their relationships with customers. These include running promotions themselves.
The record-breaking amount of money that Groupon has raised gives the company the ability to expand into those new areas — and to cash out earlier investors who may be getting impatient after the company walked away from Google’s buy-out offer.
For the venture capital firms, the investment is a way to get into one of the fastest-growing companies. Kleiner Perkins, which made a name for itself last decade with investments in Google and Amazon.com, has been slow to social media, but is turning that around with recent investments in Twitter and Groupon.
Mr. Andreessen said he considered Groupon, Facebook, Skype and Zynga — all companies in which his firm has invested — to be the four most promising companies in this era of Web start-ups, comparable to Google, Yahoo, eBay and Amazon a decade ago.
Other investors include Battery Ventures, Greylock Partners, Maverick Capital, Silver Lake, Technology Crossover Ventures and DST, the Russian investment firm that previously invested in Groupon.