I get the question every week, perhaps at least once a day. "What do you think of the Groupon IPO? That's good for you guys, right?"
To which I reply a hearty "maybe."
For those of you that have no idea what I am talking about Groupon, the biggest competitor to Half Off Depot where I currently work, went public on November 4. Groupon raised $700 million at a $12 billion valuation. That sandwiches it right between Google and Webvan as the largest IPOs in term of valuation. Interesting company to keep. I considered the Groupon IPO pricing to be a little expensive. Unlike Amazon, a much lower initial value company where I made a nice penny, I wouldn't touch it.
What do I know. The stock was priced at $20, and rose 31% on it's first day. Since then it's been in a slow drift downward. I expect that trend to continue for some time until it gets below the offer price. None of that will stop a bunch of 20 somethings celebrating the end of the lockup period at Kincade's, Sheffield's or wherever 20 somethings go to party in Chicago these days.
But back to the question is it good for Half Off Depot.
One of the things about running through the IPO process is that it generates a lot of general mass media attention. Most of the attention about Groupon was negative. Merchants don't like deals, there is no way Groupon makes money, management is blundering the IPO process. This created a generally negative sentiment around the deal space, one that is going to take a little time to overcome. We have time. And money. A lot of companies do not. They are going to go away soon. Less competition is good for Half Off Depot.
The Groupon IPO also demonstrated that investors see value in the deal space. The mishandling of the IPO process is a little problematic. Groupon got through it, they got out. But along the way questions were asked by investors that have yet to be answered. Until those questions are answered it is going to be difficult for other companies in the space to raise additional capital. Those that do are going to have to be able to clearly articulate why they are different and have a demonstrable money making model with some leverage. If Half Off Depot can do the former and show the latter, and I think we can, the Groupon IPO validated a market where we can play. Having a validated market to participate is good for Half Off Depot.
So the short answer is the Groupon IPO is good for Half Off Depot as it will make it harder for smaller underfunded companies to remain viable and they validated the market in which we participate.
All we have to do is execute on that different money making part. That will keep us busy for awhile.
When I joined Half Off Depot back in May I started looking around for a competitive target. Not the 800 pound gorilla Groupon LivingSocial type of competitive target. A smaller yet significant company that we could set our sights on. That company was BuyWithMe.
As best as I could tell BuyWithMe was the number three player at the time. Founded in Boston, based out of NYC, BuyWithMe was actviely operating in a dozen or so major markets. They had raised $21.5 million from Matrix Capital and Bain Capital. The kind of number that makes our $7 million seem small.
And BuyWithMe was on a tear. The online deal market is going to consolidate and BuyWithMe was playing the role of consolidator, something that I would like to do. In 2011 they acquired six competitors, the most recent being in September. Then the wheels fell off.
Just six weeks after its last acquistion BuyWithMe choked on them. BuyWithMe laid off half its workforce after reportedly failing to close a new round at a $500 million valuation. It was reported to be looking for a buyer.
That buyer was Gilt Groupe, who purchased the assets of BuyWithMe. Asset purchases are rarely good for the selling entity. Gilt did not hire many of the BuyWithMe staff. The purchase price was about $5 million in cash and stock. Somebody pulled the plug.
The first person that I heard espouse "do what you love" was Chris Wanstrath of GitHub fame. He covered it in his Startup Riot keynote a few years back.
The guy that said it best was Steve Jobs in his 2005 Stanford commencement address.
Over on the Groupon blog Groupon the Cat is creating quite the ruckus. It seems like Mr. Cat wrote a little blog post about "The Groupon Guide to the "Quiet Period." In it Mr. Cats states:
The “Quiet Period” is the time right before a company “goes public,” during which it is legally prohibited from saying anything to the press that may make the company look “good,” “successful,” or “not currently on fire.”
Not that I get great joy pointing this out but Mr. Cat is wrong. During the quiet period a company is indeed not allowed to publicly say anything that might be considered as pumping the offering. However quiet periods are not restricted to the time before a company "goes public". They generally apply anytime a company issues a new public offering regardless of if that offering is the initial public offering or a subsequent offering.
In 2005 the Security and Exchange Commission modifed the quite period rules so that they did not fully apply to "well-known seasoned issuers". Well-known seasoned issuers must either have a publicly traded market capitalization of at least $700 million or have issued at least $1 billion in securites other than common equity over the past three years. These well-known issuers represent approximately 30% of listed issuers and accounted for about 95% of U.S. equity market capitalization.
So regardless if it is your first public offering or your tenth, if you are in your registration period you are required to be quiet. Even if you pretending to be a cat.
So Groupon filed its S1. The length of the document and the analysis of it is staggering. So this is a blog. A web log. Here are some of my favorite reads on Groupon's filing.
Who Will Be Left Standing Post-Groupon IPO by Erika Morphy of Forbes. An analysis of the daily deal market. Not sure if I agree with her assessment of AT&T, never really seen them as sophisticated at marketing in unregulated markets.
Groupon S-1: Mind The Ratios. A nice article by Jeff Bussgang of Flybridge Capital about deteriorating customer and merchant growth ratios. Those Boston VCs like to pound the numbers.
Groupon IPO: pass on this deal by David Heinemeir Hansson a partner at 37Signals (whose founder Jason Fried sat on the Groupon board for a few years) has a blistering attack on the use of Adjusted Consolidated Segment Operating Income or ACSOI as an accounting metric. Groupon without marketing expenses is not Groupon at all. Indeed.
My bottom line. Groupon is the leader in a huge market and its growth has been astonishing. They are going to go public and cash a lot of people out. They made the market and are going to be a market leader for some time. A $20 billion valuation seems a bit rich.
Depending on who you ask Rachel Sequoia gives either the greatest or worst pre-launch startup pitch ever. Either way you have to listen to her. It's an engaging pitch for a ridiculous concept
Silicon Valley Bank is my bank of choice when it comes to startup banking. The SVB Accelerator program is pretty sweet choice for startups. No need to go to branches and wait forever to deal with some issue. Great online customer service. No monthly fees. And most importantly great value add in terms of advice, education, and connections.
Recently SVB Analytics held an online seminar "Into the Cloud - Trends in Software Investments and Exits." Interesting topic these days and the presentation was chock full of good information. If you want you can download the presention or listen to the seminar playback via the link above.
They spent a lot of time talking about how the current time is much different than 1999. Concentration of high valuations in a few large companies as opposed to more widespread increase in valuations. The New York Timed DealBook had a nice write up on the same subject, "Investing Like It's 1999." A worthy read.
As often happens with webinars I was duel tasking and my attention started to drift until someone put up and started talking about this slide.
I get all the stats. I get all the analysis. But that complete flip flop in operating philosophies from a focus on revenue and profit margins to a focus on user engagement and growth sure make all those backward looking stats a bit less meaningful. And it sure seems familar to me. 1999.
On Monday the White House announced the Startup America Partnership. Startup America is a White House initiative to celebrate, inspire, and accelerate high-growth entrepreneurship throughout America. Below is a nice video of Austan Goolsbee the Chairman of the Council of Economic Advisers explaining the program.
About the only criticism I have about the program is the expression "valley of death." I live in startup land. I have never ever heard anyone say "valley of death." Regardless the four main points Mr. Goolsbee makes are that Startup America will:
Expand access to capital for startups;
Identify and remove unnecessary regulations that are barriers to startups;
Startup America is the capstone of a sea change that has been taking place. For years and years governmental economic development efforts have mostly focused on big companies. Then last year, at least in Atlanta, something started to happen. It seemed like all of a sudden people realized that startups create jobs. Lots of groups starting turning their attention to startups. Why this happened I am not sure. But I am very encouraged that the White House understands the importance of entrepreneurship and startups in expanding the economy and creating jobs. I am also very encouraged that Startup America is getting the right people and organizations involved.
As part of the Start America kickoff 27 public and private commitments were announced. As far as I can tell there is no entity from Georgia involved. There should be. The state of Georgia needs to leverage the Startup America program with it's own economic development funding. It needs to get the right people and organizations involved. It needs to tap into existing startup support expertise (such as ATDC one of the world's top ten incubators). Doing so will help Georgia technology startups succeed, create jobs, and give Georgia an opportunity to reestablish itself as a technology leader.
A long time ago in a place not too far away a bunch of geeks that I respect a great deal told me to make the switch to Mac as OS X was a Unix based operating system. I heeded their advice and have been generally pleased using Apple computers for about nine years running.
Flash forward. A few years ago over a bowl of oatmeal Jack announced that he wanted to go to Purdue and learn how to make video games. I think he was nine at the time. Did not seem like a bad career choice to me so I decided a little encouragement was appropriate.
Jack likes money. I offered to double his allowance if he would take over IT support for the Weatherby household. He agreed and I taught him the ropes on what was needed to troubleshoot the home network and keep the computers up to date and functioning properly. We made a little notebook on the steps involved and off he went. If there are home network issues he how troubleshoots them and every Saturday morning he runs software updates on the computers and once a month does heavy maintenance.
At the time we were a duel Mac/Windows household (and still are with the exception of Abby that needs a Windows laptop for accounting applications). So after about six months of this sysadmining I asked Jack, the nine year old, a simple question "what do you like better Mac or Windows?" His reply, "Mac." "Well why is that?" I inquired. His reply, "because it's easier."
And that, from the mouth of a nine year old, is why Apple's staggering quarter is really no surprise.
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DISCLAIMER
The opinions expressed here are mine and mine alone (with the exception of comments by others of course). They do not represent the opinion or position of any other person or entity. All postings adhere to my personal values.
