Joyce Park stashed this in @rands
Should tech entrepreneurs be concerned about the frothy IPO market coming up? Zynga and Groupon might be minting cash, but are they public company material?
Groupon's burn rate is rather terrifying - what, 700mm since January? - although I don't know if it counts as burn if you're taking money off the table. That's kind of...interesting as well.
I'm a little concerned Groupon is burning through way too much cash way too quickly...
Just a question... Why would you take money _off the table if you knew that you were going to IPO soon? Isn't the whole point of an IPO to make all your early shareholders rich? Doesn't the fact that they took _so _much money off the table signal a distrust of their company's future stock value? I certainly understand wanting to make some of your early stock liquid, but taking $700M off the table less than 12 months before your IPO sends all the wrong signals to me, if I'm an investor.
Wow, Rands just called them out as a quasi-Ponzi scheme: http://twitter.com/#!/rands/status/77072308577112065
Rands links to the article that calls Groupon quasi-Ponzi, but that article does say that Groupon does very clearly state what it is doing. (Ponzi schemes, on the other hand, hide their details from investors.)
Yipit's less inflammatory analysis of Groupon reaches the same conclusion: "Declining revenue per user, increasing customer acquisition cost, and declining operating margins do not bode well for the company’s core business."
Short Logic's analysis is far more harsh: "It’s costing them $1.43 to make $1, and it doesn’t look like it’s getting any cheaper. They’re already projected to make close to three billion dollars in revenues this year. If you can’t figure out how to make money on three billion in revenue, when exactly will the profit magic be found?"
I think its aggressive to label Groupon as a ponzi scheme. There is a lot of smart money (and people) involved, and I believe that they looked at this market and said "holy $#!+ Batman, barrier to entry is low, we better grow fast!" They are effectively betting that customer retention will be high and that corresponding life time value will be high, justifying the staggering up front loss. Many businesses operate this way (buy a customer at a loss, spend months/years re-capturing value of acquisition and then some).
Another way to look at this: Imagine you are Andrew Mason. You have competitors breathing down your neck, easy access to capital, and incomplete data on what LTV might look like (but good reason to believe it will be high), what would you do? I think you'd sprint like hell and acquire a lot of customers too...
...and perhaps acquire companies too. Yelp has complementary assets to Groupon, and is valued at a price that is likely attractive to Groupon.
I'm actually looking forward to the IPO market. It's been a long time since we had a decent IPO to remind the Valley what an actual _big exit is like. I suspect we're going to have a bunch more coming up. And, IPO's generally mean a lot of new angels getting into the scene. That's all good as far as I'm concerned.
Jonathan, that's a good point. More angels means more potential seed investors for startups, and that helps us all.
What's surprising is that I can count at least seven private companies with valuations greater than a billion: Facebook, Groupon, Twitter, Zynga, Pandora, and now AirBnb and Square. That's a lot of companies that got very big very fast.
Besides, I like my mocha with a _little froth.
Actually since CafePress had profit of $2.7 million on revenues of $128 million in 2010, filing to go public makes sense.
CafePress is raising $80 million.
By comparison, AOL went public in March 1992, raising $23 million.
So 20 years later, the bar is higher.