Beruflich Dokumente
Kultur Dokumente
RESEARCH REPORT
Created: 02-01-11
Authored by: neXtup
This report has been downloaded from SharesPost, Inc., but was prepared by Global Silicon Valley Partners under the neXtup
Research brand ("neXtup Research"), and any opinions contained herein are solely the opinions of Next Up Research. Information
contained herein, including but not limited to research, valuations, calculations, estimates and any other material or sources, is
believed to be reliable, however its accuracy and completeness is not warranted or guaranteed, and past performance is not
indicative of future results. These materials are provided for informational purposes only and should not be used or construed as
an offer to sell or a solicitation of an offer to buy any security. SharesPost, Inc. is not acting as nor is it registered as an investment
adviser.
Investment Highlights February 1, 2011
Valuation: We have used two methods: a) steady- Estimated Share Price $39.41 - $40.20
state target EV/Revenue multiple, and b)
Estimated Market Cap $5.95B - $6.07B
comparative EV/Revenue multiple based on a peer
group to arrive at a market cap of $5.95 - $6.07B for www.nextupresearch.com
Groupon, and an estimated price per share of
$39.41 - $40.20 for common shares.
Investment Concerns
Local businesses have to figure out the economics of the deals: In some cases, local businesses
have offered deals in which there was no cap on the number of subscribers, the deal became
oversubscribed, and the local business suffered huge losses.
Low Consumer Retention: Local business offering deals through Groupon have a low repeat consumer
percentage of 20%.
Groupon 40%- 50% revenue sharing arrangement with local businesses is not sustainable in the long
UXQDV*URXSRQ¶VFRPSHWLWRUVFRXOGHDVLO\GULYHUHYHQXHDZD\IURP*URXSRQE\FKDUJLQJOHVV
INVESTMENT THESIS
Leader in Local Deals Market
With over 50M total subscribers across over 300 cities in more than 40 countries, Groupon is the largest
player in the local deals market. The company, a pure-play on the local deals segment, is poised to grow
at a CAGR of 20% from 2011 to 2015, in our estimate. The growth in the future is likely to be at a slower
pace, primarily because the company is already one of the largest in the local deals space. The local
deals segment, mostly aided by new entrants, should grow at 20% from 2011 to 2015.
Number of Cities
350 Groupon Expansion in to LivingSocial Groupon
Latin America - Clan
Decuento Acquisition
300
250
Groupon Expansion in
to Europe - CityDeal
Acquisition
200
150
100
50
0
Apr-09
Apr-10
Oct-10
Oct-09
Jul-09
Feb-10
Jul-10
May-10
May-09
Jan-10
Jun-10
Jun-09
Aug-09
Sep-09
Nov-09
Dec-09
Aug-10
Sep-10
Nov-10
Dec-10
Mar-09
Mar-10
*URXSRQ¶V EDFNERQH RI VXFFHVV KDV EHHQ LWV VWURQJ SDUWQHUVKLS WKDW LW IRUJHV with local businesses.
Groupon breaks into new markets by researching the local market and identifying successful local
businesses. Groupon sales personnel approach local businesses with outstanding reviews, and establish
partnership with the local business.
Highly Suitable for Businesses where Customer Acquisition Cost is Very High
Groupon is best suited for high fixed cost businesses and business where the customer acquisition cost is
YHU\KLJK7KHVHEXVLQHVVHVQHHGWRDGYHUWLVHDORWDQG*URXSRQ¶V deals offer them a channel to reach
out to a targeted consumer base in local markets without paying any upfront fees. Groupon is also best
suited for businesses thriving on repeat customers such as spas and restaurants.
Groupon has negative working capital as it gets cash from consumers as soon as they subscribe to deals.
Groupon does not need to maintain any physical inventory. Groupon receives the money from customers
up-front however the costs associated with the delivery of goods/services ordered are spread over 1-2
quarters thereby offering considerable negative working capital for local businesses
Groupon raised $950M in Series G funding in December 2010 at a post money valuation of $4.75B
from DST Global, T.Rowe Price, Capital Group, Morgan Stanley, Andreessen Horowitz, Battery Ventures,
Greylock Partners, Kleiner Perkins Caufield & Byers and Silver Lake.
Valuation: We use the following methods namely a) Multiple of EV/Revenue, b) Target EV based on
steady state revenues, normalized net margins, and a growth multiple to arrive at an enterprise valuation
of $5.95 - $6.07 B for Groupon.
(a) Multiple of EV/Revenue: With no publicly traded companies in the local deals segment, we
believe a close proxy would be the publicly traded Internet software and online retail companies.
We have used a median EV/Revenue multiple of 5.1x (Appendix A3) assuming long term
EBITDA margin of 25% and growth rate of 40% over the next few years. Using a multiple of 5.1x
and a 2012 revenue estimate of $1.19B, we arrive at a target enterprise value of $ 6.07B.
(b) Target EV based on Steady State Revenues: Appendix A details our valuation approach and
the choice of our multiple. Assuming steady state revenues of $1.65B in 2014, normalized net
margins of 25%, a growth multiple of 25, we arrive at a target enterprise value of $ 5.95B.
In some cases, local businesses offered deals in which there was no cap on the number of subscribers
and the deal was oversubscribed. In such cases, local businesses ended up being unable to meet the
delivery expectations and incurred huge losses. Businesses with unprofitable promotions have reported
ORZ UDWHV RI VSHQGLQJ E\ *URXSRQ XVHUV EH\RQG WKH GHDO¶V IDFH YDOXH DQG ORZ UDWHV RI UHWXUQ WR WKH
business again at full price.
*URXSRQ¶V business model is easy to copy, barriers to entry for the local deal market are low and
switching costs for consumers and local businesses are low. There are 500 firms worldwide (200 firms in
86DORQHZKLFKKDYHVWDUWHGWRHPXODWH*URXSRQ¶VVXFFess.
Groupon faces competition from LivingSocial which is rapidly expanding to all cities in which Groupon is
offering deals. Groupon could also face competition from players in the local review & search space such
as Yelp, which has started offering deals. Entry of larger players such as Facebook (Facebook Deals)
and Google (Google Offers) could also pose significant competition to Groupon in the future.
0RVW RI *URXSRQ¶V FRQVXmers are deal-driven and not long-term consumers. Local business offering
GHDOVWKURXJK*URXSRQKDYHDORZUHSHDWFRQVXPHUSHUFHQWDJHRI*URXSRQ¶VXVHUEDVHLVPDLQO\
composed of deal seekers and bargain shoppers who are not willing to make purchases beyond the deal.
The majority of users make onetime purchases at Groupon.
Groupon takes a 40%- 50% of the revenue from its deals. This arrangement is not sustainable in the long
UXQDV*URXSRQ¶VFRPSHtitors could easily drive revenue away from Groupon by charging less.
Groupon takes advantage of the collective buying power of its users to offer deep discounts for services
and products. The business model is a combination of coupon discounts and group buying. Coupon
th th
discounts and group buying are old concepts which date back to the late 19 century and early 20
century, respectively. In 1887, Asa Candler, a partner with the Coca-Cola Company, was the first to utilize
coupon discounts as an advertisement strategy. Candler made use of various avenues such as
magazines, mail, employees and sales representatives to distribute complimentary coupons to potential
customers.
Source: www.coca-colaconversations.com
An estimated 8.5 million free drinks were served via Coca-&ROD¶V IUHH FRXSRQV GXULQJ DQG
The company gave soda fountain operators free syrup to cover the cost of the free drinks. The idea was
soon picked up by other enterprising businesses. In 1909, Charles William Post, a manufacturer of
EUHDNIDVWFHUHDOIRRGVVWDUWHGRIIHULQJFHQWFRXSRQVWRPDUNHWKLV³*UDSH1XWV´EUHDNIDVWFHUHDO7KH
*UHDW'HSUHVVLRQLQ¶VJDYHIXUWKHULPSHWXVWRFRXSRQXVDJH,QWKH¶VELJFKDLQJURFHU\VWRUHV
promoted coupons heavily to lure customers away from local markets. By 1965, over half the families in
the US were utilizing coupons.
7KH ,QWHUQHW EURXJKW DERXW WKH QH[W FKDQJH LQ WKH FRXSRQ LQGXVWU\ LQ WKH ¶V ZKHQ GRZQOoadable
coupons and online coupons were introduced to the market. The coupon industry has continued to
increase in scale during this period. By 2009 over 86% of all American households utilize coupons. In
2009, over 3.2 billion coupons were redeemed by consumers leading to savings of $3.5B. While the
coupon industry has thrived, the focus had been restricted mainly to grocery coupons and health and
beauty care products, until now.
While coupons started with businesses reaching out to consumers, group purchasing works the other way
around. Historically, informal groups such as cooperatives have organized to buy goods directly from a
wholesaler at a discounted price. Organized group buying was first utilized by the healthcare industry. In
1910, a healthcare Group Purchasing Organization (GPO) was established by the Hospital Bureau of
New York. Later, other industries such as the grocery industry and industrial manufacturing and
agricultural industries formed GPOs of their own to purchase raw materials and supplies at discount rates.
Consumers did not always have a platform where they could organize themselves for group buying
DFWLYLWLHV ,W ZDVQ¶W XQWLO WKH LQYHQWLRQ RI WKH ,QWHUQHW LQ WKH ¶V WKDW FRQVXPHUV ZHUH DEOH WR EDQG
together to form such groups. The first such groups formed in chat rooms and message boards.
Companies facilitating such group buying first emerged towards the end of the century.
Mercata.com, established in 1999, was one of the first group buying websites. The idea, then known as
demand aggregation, allowed consumers to group together and purchase goods at low prices through
volume discounts from a selection of electronics, sports equipment, software, jewelry and appliances.
MobShop.com and Letsbuyit.com (an European company) were among the other major players in the
market. These sites were free to use for consumers and earned revenues by taking a cut from
businesses that sold the products.
Source: www.mercurephoto.com
One of the problems with the early business model of group buying was the time factor. Sellers offered a
deal only if a certain number of users opted for it. These buy cycles sometimes lasted over a week. By
that time users would move on to other stores or online shopping sites. Social networking, though all-
SHUYDVLYH QRZ ZDVQ¶W \HW SUHVHQW WKHQ 7KHUH ZDV QR YLUDO SODWIRUP ZKHUH XVHUV FRXOG VSUHDG QHZV
about interesting deals. This increased the time it took for deals to achieve minimum numbers of users.
Discounts offered on some items were not significant. Because the early group buying sites offered a
variable discount model (the discount would increase with an increase in the number of consumers), it
was possible that a consumer could buy the item at a comparable price (sometimes even lower) at local
stores or on online shopping sites. This too was a hindrance to widespread adoption.
These companies also competed against Wal-Mart, Amazon and Target - companies that enjoyed
economies of scale much greater than what Mercata or MobShop could achieve at that point.
During the same time, a variation of the group buying business model, Tuángòu, originated in the
People's Republic of China. In this methodology, several shoppers connected over the Internet and
approached a vendor together for the purchase of a specific product in order to drive a better bargain and
get discounts.
The Tuángòu phenomenon was very successful in Mainland China, where the popularity of the strategy is
often attributed to the Chinese tradition of bargaining for the purchase of goods of all types. The
popularity of Tuángòu soon led to websites that facilitated Tuángòu buying. These sites acted as
intermediaries between vendors and shoppers. They would coordinate with vendors on team buying
events for goods required by shoppers. Shoppers had to register in advance and the final number was
communicated with the vendors. Negotiations were left to the shoppers who would conduct the
bargaining themselves. This was markedly different from the early group buying sites where the shoppers
would not know the final price of an item until the deadline had passed. However, this unique strategy
would not translate well to the western markets where bargaining was not a tradition.
Local deals sites usually derive their revenue through deals featuring goods of local businesses. Local
businesses use the deals as online advertisements to increase the popularity of the products and
services. We estimate that the local deals market should increase from $994M to $1476M from 2010 to
2011, an increase of 48.40% from 2010 levels (Exhibit 5). By contrast, the overall US online spending is
likely to edge up to $28.5B in 2011 up from $25.8B in 2010.
$ 50 8.00%
US Online Advertising Spend In $B % of US Online Ad. Spend
$ 45
7.00%
$ 40
6.00%
$ 35
5.00%
$ 30
$ 25 4.00%
$ 20
3.00%
$ 15
2.00%
$ 10
1.00%
$5
$0 0.00%
2009 2010 2011E 2012E 2013E 2014E 2015E
Local businesses create more than 50% of the US GDP and create more than 75% of new jobs each
year. However, small businesses represent a fragmented, difficult sector of the US economy. Prior to the
advent of local deal providers, local businesses had to access traditional advertising channels to reach
their customers. Of 1 trillion global web pages, only 15M web pages feature content related to US local
businesses.
Deals feature products and services of local business Ability to reach a targeted customer base within
which might not have any web pages the local area
Among pure-plays, Groupon is the leader in the local deals market with nearly 60% of the market share
(Exhibit 7). We estimate that the market will increase from $1.48B in 2011 to $3.03B in 2015 and that
*URXSRQ¶VUHYHQXHZLOOLQFUHDVHIURP0WR9B over the same period at a CAGR of 20%.
4,000 100%
Local Deals Market in $M Groupon Market share in %
3,500
80%
3,000
2,500
60%
2,000
40%
1,500
1,000
20%
500
0 0%
2009 2010 2011E 2012E 2013E 2014E 2015E
Groupon tops the popularity metrics with nearly 11.2M unique visitors a month in the US. Coupons
occupies the second position with 10.5M unique visitors. Yelp and LivingSocial occupy the third and
fourth position with 10.1M unique visitors and 7.7M unique visitors respectively (Exhibit 8). However
LivingSocial occupies the second position in popularity metrics such as unique visitors, total number of
subscribers worldwide behind the market leader Groupon.
In the US, we estimate that the number of monthly active users of Groupon has increased from 1.8M in
November 2009 to 11.2M in November 2010. During the same time frame, Coupons has shown a
decrease in monthly active users from 15.4M to 10.6M. LivingSocial has shown an increase in monthly
active users from 0.8M to 7.7M. We believe that the local deals market is still in early stages of adoption
and that variations over a few months may not necessarily portend a trend.
The majority of users who purchase deals from local deal providers are early adopters ± highly affluent
people with considerable disposable income. Nearly 75% of the users are 18 ± 34 year old urban
females. Most of the users use social networking sites such as Facebook and Twitter. Groupon alone
caters to nearly 60k-200k users per city, and 100-1000 users subscribe to a particular deal in each local
market.
16
Unique Visitors in US (In M)
14
12
10
0
Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10
Source: Compete
3%
11%
18%
68%
5% 2%
12% 1%
50%
30%
6%
12%
49%
33%
Male Female
23%
77%
12%
75%
$100,000+ $70k - $99k $50k - $69k $40k - $49k $30k - $39k $29000-
7%
12% 29%
12%
19%
21%
*URXSRQ¶VEXVLQHVVPRGHOLVHDV\WRFRS\DQGFXUUHQWO\WKHUHDUHDWOHDVWVXFKILUPVZRUOGZLGHZLWK
nearly 200 operating in US alone. Groupon expands to new markets by acquiring the dominant firms in
those markets. The local deals market is going through a phase of consolidation as the leading players
such as Groupon and LivingSocial have acquired many firms in 2010.
Among the pure-plays, we believe only Groupon and LivingSocial have been successful.
Yelp
San Francisco, US
http://www.yelp.com
Launched in October 2004, Yelp is a local review website where users can write and read reviews on
various categories such as shops, restaurants, beauty salons and spas, arts and entertainment,
education, real estate, pets, financial services, hotels and travels. Yelp also offers its users social
networking features such as the ability for users to add friends, form groups, arrange and conduct events,
participate in discussion forums.
Yelp was founded by Jeremy Stoppelman and Russel Simmons, who were early employees at PayPal. In
September 2004, Yelp started as an email recommendation service to help users find information on local
businesses such as dentists, hair stylists and mechanics. Users could specify the service they were
looking for and the email addresses of friends whose recommendations they wanted to ask for. These
friends then received an email message along with a request to pass it to others who might be of help.
<HOS FRPSLOHG WKH UHVSRQVHV DQG VHQW WKHP WR WKH RULJLQDO LQTXLUHU <HOS PDGH WKH IULHQG¶V
recommendations available for browsing but did not provide user-profile or photo functionality to
contributors. The email service was aborted and the Yelp website was re-launched with a focus on Local
Community in February 2005. The users just need to enter their locale and service they desired.
In March 2005, Yelp launched the concept of the Elite Squad in San Francisco. Only users who were
highly opinionated and wrote engaging reviews were selected to be a part of the Elite Squad. The Elite
Squad also hosted local events and parties which brought together fellow yelpers. In June 2006, Yelp
reached the milestone of 1M unique visitors. In July 2006, Yelp Mobile (http://m.yelp.com) was launched.
In April 2009, Yelp introduced a feature allowing public business owner comments. Beginning in July
2009, Yelpers were able to share their reviews on Facebook and Twitter.
From 2008 onwards Yelp expanded to other regions. In March 2008, Yelp opened its New York office.
Yelp launched in UK in August 2008, followed by a Canadian version in January 2009. In June 2009, Yelp
Yelp has received $56M through five rounds of funding. In July 2004, Yelp received $1M of Series A
funding from Max Levchin. In October 2005, Yelp received $5M of Series B funding from Bessemer
Venture Partners. Series C funding of $10M in October 2006 was from Benchmark Capital. In February
2008, the company raised $15M in Series D funding from DAG Ventures. In the most recent round, Yelp
raised $25M in Series E funding from Elevation Partners in January 2010 at an estimated post money
valuation of $475M. It is rumored that in December 2009, Google made an offer of $550M for acquiring
Yelp. Soon thereafter, Yahoo was rumored to have made a counter offer of $750M. Yelp management
reportedly declined both the offers.
Yelp generates revenue by selling advertisements to local businesses as well as through sponsored
search results. We estimate that Yelp made revenues of $30M in 2009 and $50M in 2010.
Headquartered at San Francisco, CA, Yelp has 150 employees. Yelp is accessed by over 38M unique
visitors every month and is one of the top 150 of US Internet web sites. Users have written 11 million local
reviews on the Yelp website, 85% of which have given businesses a rating of 3 stars or higher.
LivingSocial
Washington, US
http://livingsocial.com/
Founded in 2007, LivingSocial is a social discovery and cataloging network that connects users with their
interests. LivingSocial's social applications enable more than 85M users to catalog, review, share and buy
their favorite items.
LivingSocial members receive daily deals based on their interests at local restaurants, bars, salons, spas,
theatres and local attractions in major cities. LivingSocial offers one deal everyday with discounts up to
90% at local restaurants, bars, spas, theaters and other local attractions in major cities.
Users receive their daily deal updates through email. Once a user buys a deal, the user has the option to
share the deal details with friends. If more than a specified number of friends buy the same deal, then the
user is offered the deal for free.
LivingSocial is a strong number two in the local deals market after Groupon, and in some regional
markets, a bigger player than Groupon. LivingSocial offers deals in more than 127 markets and four
countries. We estimate that the US Online spending (on which local deals market is dependent) is likely
to edge up to $23.6B in 2010 up from $22.4B in 2009.
Headquartered in Washington D.C., the company has more than 280 employees.
Coupons
Mountain View, CA
http://www.couponsinc.com
Founded in 1998, Coupons is a leader in interactive coupon solutions, providing clients with a solution to
coupon based promotions and consumer services.
The Company's marketing technology solutions have helped top brands and retailers reach consumers
on thousands of Web sites with alternatives to offline-delivered coupons. Users can save money by using
options such as printable coupons, Save to card offers and local coupons
Coupons.com is the largest printable coupon Website on the Internet. Coupon Codes are available for
diverse product categories such as Apparel & Shoes - Women, Home & Garden, Computers & Software,
Books, Music & Movies, Toys & Hobbies, Auto & Travel, Beverages, Foods, Health care, Household,
Office supplies, Personal care, Pet care, Photography, Professional Services, Restaurants and Toys &
Games.
Coupons' clientele and licensees include companies such as Johnson & Johnson, General Mills,
Kimberly-Clark, Kraft Foods, McDonalds and Clorox as well as hundreds of grocery retailers including
Kroger, Safeway, CVS and Kmart. Savings from coupons printed out or loaded to a loyalty card from its
online properties doubled to more than $1B in the first half of 2010 from $529M in 2009.
Founded in 2003, CouponCabin is a provider of online, printable grocery coupons for more than 2,800
merchants.
CouponCabin does not create online coupons, instead CouponCabin finds and collects coupons much
like how the Sunday newspaper collects grocery coupons. Users have the option to sign up for a daily
newsletter of featured offers, or alerts to receive an email notification when new coupons appear for their
selected merchants. Merchants pay CouponCabin a percentage of sales when an item is sold using a
CouponCabin sourced promotion
CouponCabin offers coupons in coupon categories such as Apparel, Home & Garden, Jewelry &
Watches, Baby, Kids & Toys, Kitchen & Cooking, Books & Magazine, Music, DVDs & Video, Computers &
Software, Office Supplies, Department Stores, Pet Supplies, Electronics, Shoes, Flowers & Gifts, Sports
& Recreation, Food & Wine, Tools & Automotive, Health & Beauty and Travel & Luggage
Kupikupon
Moscow, Russia
http://www.kupikupon.ru
Founded in March, 2010, Kupikupon offers daily discounts on goods and services in major cities in
Russia, Ukraine, Belarus, Latvia, Lithuania, Estonia and Kazakhstan.
It partners with local businesses to negotiate a discount on their goods and services in return of bringing
them agreed number of customers.
Woot
Carrollton, TX
http://www.woot.com
Founded in July 2004 by electronics wholesaler Matt Rutledge Woot's main website generally offers only
one discounted product each day, often a piece of computer hardware or an electronic gadget. Other
Woot sites provide offers such as one t-shirt per day, five selections of wine per week, one children's item
Woot.com pioneered the 'one deal per day' business model that is now used by web-based retailers.
Woot offers one product per day until its stock of that item is sold out or the product is replaced at
midnight with the next offering. If a product sells out during its run, the next item still does not appear until
midnight, except during Woot-Offs.
Woot has created several spin-off sites such as Wine Woot, Shirt Woot, Sellout Woot, Kids Woot, Deals
Woot and Moofi Woot, some of which follow a similar business model as the main site, while others
provide other retail-related services.
Woot was acquired by Amazon in June 2010 for $110M. Headquartered in Carrollton, Texas, Woot has
more than 140 employees.
CheapToday.com
Brookline, MA
http://www.cheaptoday.com
Founded in October, 2008, CheapToday is an Online Media Company that owns and operates an Online
Shopping Network for Women. CheapToday offers deals, coupons, gift cards, freebie deals and
information about best deals provided by top retailers such as Overstock, Target, Aeropostale,
Nordstrom, Gap, Macy's, Sears and Kohl's.
CheapToday finds and publishes the best deals handpicked by experts and displays them based on
user's preferences. CheapToday offers deals and coupons in several categories such as accessories,
beauty, casual wear, floral, gifts, jewelry, leather goods, make-up, clothing and home décor.
CheapToday derives its revenue from advertising, percentage share of revenue generated through deals
offered through its web site
Ideeli
New York, NY
http://www.ideeli.com
Founded in 2007, Ideeli is an invite-only site that hosts sales of luxury merchandise at discounts ranging
from 50% to 80%. Ideeli creates daily online events for its online members. Members are informed about
the events through email and mobile alerts.
Ideeli offers deals involving new brands with discounts up to 80%. The categories in which Ideeli offers
deals and events are retail, shopping, fashion, style, clothing, accessories, handbags, luxury, shoes, and
watches. Ideeli offers "first row" membership to its members for $7.99 a month using which users can get
Ideeli has raised $23.8M in two funding rounds. In December 2007, Ideeli raised $3.8M in Series A
funding from Kodiak Venture Partners. In December 2009, Ideeli raised $20M in Series B funding from
Kodiak Venture Partners, Constellation Ventures and StarVest Partners.
Headquartered in New York, NY, Ideeli has more than 125 employees.
Gilt City
New York, US
http://www.giltcity.com
Gilt Groupe launched Gilt City in April 2010. Gilt City provides local deals and offers with discounts up to
70%. Gilt Groupe is a privately held company dedicated to providing its members with access to coveted
fashion and luxury lifestyle brands at sample sale prices. Gilt Groupe hand selects both established and
up and coming brands relevant to its membership base.
Like Groupon, Gilt City offers deals from local businesses (such as restaurants, beauty salons) and
events. Deals are available in limited quantities and last for a one week period. Deals are updated once
every week unlike Groupon where deals are updated every day. Deals offered by Gilt City do not require
a minimum number of participants to get activated.
Gilt Groupe has raised $98M of total funding through four funding rounds. In November 2007, Gilt Groupe
raised $5M in Series A funding from Matrix Partners. In August 2009, Gilt Groupe raised $43M in Series B
funding from General Atlantic and Matrix Partners. In May 2010, Gilt Groupe raised $35M in Series C
funding from General Atlantic and Matrix Partners. In December 2010, Gilt Groupe raised $15M in debt
funding from TriplePoint Capital.
Headquartered in New York, NY, Gilt Groupe has more than 200 employees.
North America
USA X X X X X X X X X
Canada X X X X X
Europe
UK X X X X X
France X X
Germany X X X
Ireland X X X
Rest of Europe X X X
Latin America X
Asia
Russia X X
Singapore X
Japan X X
Rest of Asia X X X
Australia X X
Exhibit 16: M & A Activities in Local Search and Review Provider Space
Deal
Acquirer Target Date Comments
Size
Tippr ChiTown Deals Jun-10 ChiTown Deals is a Chicago based deal provider NA
Deal
Acquirer Target Date Comments
Size
Groupon Qpod.jp Aug-10 Majority stake in Qpod.jp, a Japanese local deal site NA
Groupon Darberry.ru Aug-10 Majority stake in Darberry.ru, a Russian local deal site NA
The idea that would eventually lead to the birth of Groupon was generated as result of the frustration felt
by Andrew Mason when he tried cancelling a cell phone contract in 2006. In November 2007, Andrew
Mason launched a web platform called The Point based on the "tipping point" principal (the number at
which an idea reaches critical mass), that would utilize social media to organize collective action. Using
The Point platform, Groupon was launched in November 2008 and Groupon grew quickly from a dozen
employees to over 350 within a span of 1.5 years.
In February 2009, Groupon deals were launched in Chicago and in the subsequent months, similar deals
were introduced for major US cities such as Atlanta, New York, Los Angeles. In May 2010, Groupon
expanded to Europe through its acquisition of CityDeal. Groupon was estimated to be worth $1B within 16
months of its launch. The combination of an increasing number of daily deals and no physical inventory
OHG WR *URXSRQ¶V H[SORVLYH JURZWK ,Q -XQH *URXSRQ DFTXLUHG &ODQ'HVFXHQWR D GHDO VLWH LQ WKH
Central and Latin American markets. In August 2010, Groupon bought majority stakes in Qpod.jp (Japan)
and Darberry.ru (Russia). These sites have been rebranded as local versions of Groupon. In October
2010, Groupon acquired Mob.ly, a mobile application developer, to enhance its mobile products. In
December 2010, Groupon acquired Ludic Labs which is a San Mateo based social media tech
development firm. In January 2011, Groupon acquired local deal providers SoSasta.com, Twangoo.co.za
Grouper.co.il and Groupmore and expanded its operations to India, South Africa, Israel and Malaysia.
Groupon has secured $1.1B in five rounds of funding. In January 2007, Groupon received an investment
of $1 million in Series B funding from Eric Lefkofsky and Brad Keywell. Groupon secured $6.8M in Series
D funding in January 2008 from New Enterprise Associates. In December 2009, New Enterprise
Associates and Accel Partners made an investment of $30M in Series E funding in Groupon. In April
2010, Groupon secured $135M in Series F funding from Digital Sky Technologies, Battery Ventures,
Accel Partners and New Enterprise Associates at a post money valuation of $1.2B. In December 2010,
Groupon raised $950M in Series G funding at a post money valuation of $4.75B from DST Global,
T.Rowe Price, Capital Group, Morgan Stanley, Andreessen Horowitz, Battery Ventures, Greylock
Partners, Kleiner Perkins Caufield & Byers and Silver Lake. Groupon is planning to use the recent round
of funding for expanding in China and plans to hire 1,000 Chinese employees within a year. In November
2010, Groupon rejected a $6B buyout offer from Google.
Groupon has more than 24M total subscribers who have bought more than 23M Groupons leading to
dollar savings of more than $1B in more than 150 US cities. Groupon has more than 50M total
subscribers in more than 40 countries worldwide. Groupon is estimated to have achieved revenue in
excess of $600M in 2010. We estimate that Groupon will achieve $920M in revenue in 2011, with as
much as 40% coming from international markets. Headquartered at Chicago, Groupon has more than
3100 employees.
November 2007
The Point based on the "Tipping
Point" prinicipal launched 2008 January 2008
Groupon raises $6.8 M in a Series
D funding round
November, 2008
Groupon launched in Chicago
2009 using The Point's web platform
April 2009
Deals launched in major US cities
December 2009
Groupon raises $30 M in a Series E
funding round led by Accel
2010 Partners and NEA
April 2010
April 2010 Launches iPhone application;
Groupon estimated to be worth Received $135M from DST and
$1B Battery Ventures at a post money
valuation of $1.2 B
May 2010
GroupOn expands to Europe via June 2010
acquisition of CityDeal Expands to Latin America;
Acquires Clan Descuento, a deal
July 2010 site in Latin and Central America
Partners with McClatchy
August 2010
August 2010 Expands to Japan and Russia by
Launches Personlised deals; taking majority stake in Qpod.jp
Launches National Deal with Gap and Darberry.ru
October 2010
November 2010 Expands to new markets in US,
Groupon & eBay announce Co- Canada; Launches in Mobile after
Marketing Incentives; Announces acquiring Mob.ly
Global Distribution partnership November 2010
with Yahoo Groupon rejects a $6 B buyout
offer from Google; Acquires
December 2010 ubuyibuy (Hongkong),
Obtains $950M in Series G funding Beeconomic (Singapore &
at a post money valuation of $4.75 Phillipines) & AtlasPost (Taiwan)
B; Launches big features - 'Groupon
Stores' & 'Deal Feeds'; Acquires December 2010
Ludic Labs Acquires SoSasta.com (India),
Twangoo.za (South Africa) and
Grouper.co.il (Israel)
In May 2010, Groupon bought Mob.ly, a mobile development firm. Mob.ly, formerly known as Goodrec, is
a mobile application service that works with clients to create mobile applications. Mob.ly had earlier built
applications for clients such as Comedy Central, NBC, Digg and Yahoo!. Mob.ly acquisition was primarily
PDGH WR HQKDQFH *URXSRQ¶V PRELOH DSSOLFDWLRQV 3ULRU WR WKH DFTXLVLWLRQ *URXSRQ
V L3KRQH DSSOLFDWLRQ
used to allow users to find and purchase nearby deals, search for those deals in different cities and
redeem coupons. Users can now decide about deals, purchase the groupon, share deal details with other
users, discuss deals and redeem Groupons directly from their iPhones.
In June 2010, Groupon acquired ClanDescuento, a deal site based in Chile. ClanDescuento provided
deal offers in Chile, Peru, Argentina, Colombia and Mexico. This acquisition gives Groupon a foothold in
the Central and Latin American markets.
In July 2010, Groupon signed an agreement with The McClatchy Company, an Internet and newspaper
SXEOLVKLQJ FRPSDQ\ WR GLVWULEXWH H[FOXVLYH FRQWHQW WR 0F&ODWFK\¶V ZHEVLWHV FDWHULQJ WR 86 FLWLHV
Deals available on McClatchy websites are exclusive and are not available on Groupon.com. The
McClatchy Company is the third largest newspaper publisher in the US with 43 non-dailies and 30 daily
newspapers such as the Miami Herald, The Sacramento Bee, the Fort Worth Star-Telegram, The Kansas
City Star, The Charlotte Observer, and The News & Observer (Raleigh). McClatchy also operates
websites that offer users news, information, advertising, ecommerce and other services.
In August 2010, Groupon bought majority stake in local sale sites Qpod of Japan and Darberry of Russia.
Groupon reportedly invested $10M in Qpod for the majority stake. Qpod, founded in June 2010, was
started by direct sales company, PakuReserve and Infinity Venture Partners and has over 60 employees.
Groupon invested in a new round of funding for a majority stake in Darberry. Darberry launched in March
2010, was funded by AddVenture and eVenture Capital Partners. eVenture Capital Partners had earlier
sold CityDeal to Groupon in May 2010. Darberry operated in more than seven Russian cities and Ukraine
and has more than 180k subscribers.
In October 2010, Media General, publisher of the Richmond Times-Dispatch, Tampa Tribune, and other
QHZVSDSHUVHQWHUHGLQWRDSDUWQHUVKLSZLWK*URXSRQWRRIIHUGHDOVWKURXJK0HGLD*HQHUDO¶VZHEVLWHV
Media General has started placing deal powered by Groupon in its Richmond Times-Dispatch website
and expects to add similar deals to its websites in six other markets.
In October 2010, eBay announced that it was offering regional daily deals to eBay users via a partnership
with Groupon. eBay will determine the location of its users and display deals available in that location.
Members of eBay rewards program will earn 5% in eBay Bucks for Groupon deals that they purchase.
Such members can utilize their eBay Bucks for purchases on eBay.
In November 2010, Groupon announced the launch of its offers in Hong Kong, Singapore, Philippines and
Taiwan markets through the acquisition of local daily deal sites uBuyiBuy, Beeconomic and Atlaspost.
In December 2010, Groupon acquired Ludic Labs which is a San Mateo based social media tech
development firm that owns Offer Foundry (advertising and deals platform) and Diddit (online community
for local interests).
In January 2011, Groupon expanded its operations to India, South Africa and Israel by acquiring local
deal providers such as SoSasta.com, Twangoo.co.za and Grouper.co.il respectively.
In January 2011, Groupon expanded its operations to Malaysia by acquiring Groupmore, Malaysia based
group buying site that was launched 5 months back and is serving 52k users.
Groupon features deals involving products/services offered by local businesses in some selected locales
based on the target consumer base. When a minimum number of users subscribe to the deal, the deal
becomes active. The deal is generally available for a few days and the deal becomes inactive if the
critical subscription is not reached. Consumers pay Groupon by purchasing the deal.
Money/Cost Flow
Inf ormation Flow
Groupon pays the local businesses after taking a 40%-50% share of the revenue generated by the deal.
Consumers then redeem coupons with local businesses and receive discounts.
Local
US
# of geographies National
International
# of deals
Main deal
Categories per
Side deal
geography
Groupon derives its revenue through the deals that are subscribed by the consumers and is a factor of
the deal size and the number of deals. Number of deals is dependent on the number of geographies
where Groupon is offering deals and the deal categories Groupon offers deals in various categories such
as Main Deals, Side deals and Groupon Stores. Net deal size is dependent on the discounted deal price
and revenue share to Groupon (which is as high as 40%-50% and for deals below $10 Groupon charges
100% commission). The discounted deal price is dependent on the Gross/List price and the discount that
is offered to consumers.
Once the deal is effective, users can use the deal within a certain window of time. The window, in most
cases, spans across a few months. Certain deals limit the number of users who can buy the deal. If the
deal is executed, Groupon earns a commission from the retailer. Deals are offered across a wide
spectrum of segments (Exhibit 21).
Besides the main deal, Groupon may also offer a side deal in some cities. These side deals generally do
not offer as deep discounts as offered by the main deal.
Registered Groupon users are notified of deals through a daily email. Facebook and Twitter users can
VXEVFULEH WR GDLO\ GHDOV YLD *URXSRQ¶V )DFHbook Page and Twitter stream respectively. iPhone and
Android users can download the Groupon app to their mobiles for daily updates on deals.
The deals offered by Groupon can be classified as belonging to the categories of consumer packaged
goods, accessories, automotive, hotels and restaurants, beer, wine and spirits, diet and fitness,
electronics, entertainment, fashion and beauty, health and pharmaceutical, financial and travel.
An example of a Groupon deal in the Hotels and Restaurants segment is a Groupon of $189 for a two-
QLJKWVWD\DWWKH:RRGZRUG¶V,QQLQ1HZ+DPSVKLUHRIYDOXH
Travel Electronics
Groupon
Deals
Beer, Wine
Accessories
and Spirits
Hotels and
Automotive Restaurants
For example, the main deal of the day for Atlanta in January, 2011 was an offer for either of the following,
a) a Signature Facial (worth $135) at $59 or b) a Spa Night for two (worth $290) at $95 at Seraphim Skin
care. A critical mass of 50 customers would have to be attained for this deal to be effective.
2QH VLGH GHDO IRU -XO\ ZDV DQ RIIHU WR EX\ ZRUWK RI FKLOGUHQ¶V ERRNV DQG JLIWV IRU 7KH
Groupons for this side deal sold out with 300 purchases.
Groupon Stores
In December 2010, Groupon announced a new service called Groupon Stores. Groupon Stores are
virtual storefronts where merchants can organize their own deals. The e-commerce platform can be
Mobile Apps
The company also uses the mobile channel through a Groupon App for iPhone users released in March
2010. In July 2010, the company launched an Android App as well, besides introducing an upgraded
version of the earlier iPhone App in June 2010.
Deal Feeds
In December 2010, Groupon introduced a new feature called Deal Feeds to its website, by virtue of which
XVHUV FDQ ³IROORZ´ D SDUWLFXODU EXVLQHVV WR NQRZ ZKHQ LW RIIHUV D VSHFLDO GHDO 7KH GHDO IHHG LQFOXGHV
featured daily deals, deals posted by merchants the user follows, and those posted by merchants
recommended by Groupon based on what Groupon derives about the purchase behavior of the user.
Groupon has developed partnerships with several companies in order to provide a range of services to
the merchants who choose to advertise Groupon Deals.
Spring Restaurant
In August 2009, Chicago offered a Groupon deal of $35 for a $75 worth of seasonal and contemporary
cuisine at Spring Restaurant, to be redeemed on or before February, 2010. Though the critical mass for
the deal was 100 customers, the deal exceeded the expectations of the management and a total of 2873
Groupons were sold.
Spring Restaurant does not do any traditional marketing except for working with a public relations house.
The General Manager of Spring Chicago said that the Groupon deal, operated through a simple to
execute process, led to new customers.
The company indicated that the Groupon deal resulted in selling a total of 1407 Groupons and carried no
expenses other than the commission. According to the company, the deal was more successful than the
previous marketing attempts of the company in bringing in a demographically diverse group of customers,
encompassing students, professionals as well as senior citizens.
In September 2010, Rice University conducted a study in which they interviewed 150 merchants who had
run deals with Groupon. 32% of the responding merchants said that the deals were unprofitable and that
40% said that they would not want to run a promotion with Groupon again. In particular, Posies café in
Portland, which had run a deal with Groupon, suffered losses from running the deal. This was attributed
to a) not putting a maximum limit to the number of users who could avail of the deal, and b) Groupon
charging a very high percentage of commission, which meant 100% for Groupons below $10. Groupon
justifies charging 100% commission for below $10 Groupons saying that for deals of this sum, customers
would invariably purchase worth more than $10.
However, the deal was not profitable for Posies, as it made a loss of $8000. The study also says that the
advertising target of the merchant may not be met always. Since the Groupon customer base comprises
deal-seekers and bargain shoppers, not many of the users turn into repeat customers ready to shop at full
price without a Groupon. It also found that among service businesses, restaurants benefitted the least
from Groupon deals while salons and spas were the most successful.
On April 16, 2010, Groupon had 31 deals, 45,910 paying customers and sold nearly $1.3M worth of
coupons. This was a significant increase from the 17 deals, 10,018 customers and $240,000 in gross
sales it had on November 6, 2009. Groupon is seeing growth across various parameters such as number
of deals/day, average customers/deal, average deal price and average gross revenue/deal. Of these
parameters, the average deal price has increased from $24.65 to $44.94 in the same period.
Groupon derives a major part of its revenue from US, Canada and European markets, but the company is
rapidly expanding to Asian and Latin American markets by acquiring similar deal providers and taking
majority stakes in the leading deal providers in those markets.
([KLELW*URXSRQ¶V5HYHQXHVPLOOLRQ
$ 2,000
$ 1,800
$ 1,600
Revenues in $M
$ 1,400
$ 1,200
$ 1,000
$ 800
$ 600
$ 400
$ 200
$0
2009 2010 2011E 2012E 2013E 2014E 2015E
Revenue (million)
$85 $600 $920 $1,190 $1,430 $1,645 $1,885
We use the following methods a) Multiple of EV/Revenue, and b) Target EV based on steady state
revenues, normalized net margins, and a growth multiple to arrive at an approximate valuation for
Groupon.
As explained in Appendix A, valuing private companies while they are in a rapid growth trajectory is a
difficult exercise. Minor shifts in time periods can cause significant shifts in valuation. We believe
investors have to look at a year when growth moderates to around 15% and discount the valuation back
to present.
We calculate target EV based on the following formula (please see Appendix A for a detailed description
of this method) ±
Assuming steady state revenues of $1.65B in 2014, normalized net margins of 25%, a growth multiple of
25, we arrive at a target 2011 enterprise value of $5.95B
$ 8,000
$ 7,000
Valuation in $M
$ 6,000
$ 5,000
$ 4,000
$ 3,000
$ 2,000
$ 1,000
$0
2011E 2012E 2013E 2014E 2015E
EV/Revenue Multiple:
To arrive at aproximate estimates, we have used a similar group of companies as a proxy for Groupon.
The 2012 EV/Revenue multiple for the group is 3.6x (Exhibit 32). We believe that this universe will
provide a conservative estimate fRU*URXSRQ¶V9DOXDWLRQ
We believe that Groupon can achieve a secular growth rate of 25% and EBITDA margins of 40%. Based
RQWKHWDEOHLQ$SSHQGL[$ZHDUHDWWULEXWLQJDPXOWLSOHRI[WR*URXSRQ¶V(95HYHQXHV
The list in Exhibit 31 has many companies which we believe have a slower growth rate than Groupon.
%XWWKLVXQLYHUVHVKRXOGSURYLGHDFRQVHUYDWLYHHVWLPDWHIRU*URXSRQ¶VYDOXDWLRQ
Secular
Revenue ($, B) EV/Revenue
Company Total EV
Ticker
Name ($, B) EBITDA
Growth
Margin
CY11E CY12E CY11E CY12E
$40
IPO Bear Case IPO Bull Case
$35
$30
Share Price
$25
$20
$15
$10
Bull Case
Bear Case Valuation @
Valuation @ $6069 M
$5 $5950 M
$0
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000
Valuation ($, M)
EV/Revenue $6,069
Liquidation Multiple 1x 1x 1x 1x 1x
Conversion Rate
3.00 3.00 3.00 3.00 1.00
(Common to Preferred)
39.41 - 39.41 -
Issue Price/Share in $ $0.33 $0.24 $2.27 $10.71 $31.59
40.20 40.20
$5.95B - $5.95B -
Post Money (M) $7 $9 $89 $458 $5,226
$6.07B $6.07B
DST Global,
T.Rowe Price,
Digital Sky Capital Group,
Technologies, Morgan Stanley,
New
Battery Andreessen
New Enterprise
Eric Lefkofsky Ventures, Horowitz, Battery
Investors Enterprise Associates
Brad keywell Accel Ventures,
Associates Accel
Partners, New Greylock
Partners
Enterprise Partners, Kleiner
Associates Perkins Caufield
& Byers and
Silver Lake
Issue Total
Conversion Dividend Liquidation
Funding Type Shares (M) Price/Share Investment
Rate (X) Rate Rate ($,M)
($) ($,M)
In this case, Series G preferred shareholders receive their proceeds first because of their seniority over
other shareholders.
At an exit valuation of $990M, Series G preferred shareholders and Series D convert their shares into
common stock. Once Series G shareholders and Series D shareholders receive their proceeds of $950M
and $4.8M respectively, the remaining proceeds are shared among the other shareholders in the ratio of
common shares they hold or convert in to at the time of conversion
At an exit valuation of $1,005M, Series B preferred shareholders convert their shares into common stock.
Series B preferred shareholders receive their proceeds of $0.2M and the remaining proceeds are shared
among the other shareholders in the ratio of common shares they hold or convert in to at the time of
conversion
At an exit valuation of $1,327M, Series E preferred shareholders convert their shares into common stock.
Series E preferred shareholders receive their proceeds of $30M and the remaining proceeds are shared
among the other shareholders in the ratio of common shares they hold or convert in to at the time of
conversion.
At an exit valuation of $2,729M, Series F preferred shareholders convert their shares into common stock.
Series F preferred shareholders receive their proceeds of $135M and the remaining proceeds are shared
among the other shareholders in the ratio of common shares they hold or convert in to at the time of
conversion.
At an exit valuation of $6,198M, Series G preferred shareholders convert their shares into common stock.
Series G preferred shareholders receive their proceeds of $950M and the remaining proceeds are shared
among common shareholders
Founded in 1978, New Enterprise Associates (NEA) makes investments in the information technology
sector with a focus on communications, software and services, and electronics industries and the
healthcare sector with a focus on energy technology, biopharmaceuticals, medical devices, healthcare
services, and healthcare information technology industries. The initial investments by NEA range between
$200K and $40M and typically sponsors subsequent finance rounds. The company is headquartered at
Menlo Park, California with additional offices in Reston, Virginia, Baltimore, Maryland, Middle Shanghai,
Mumbai and Bangalore.
Accel Partners
Founded in 1983, Accel Partners is a venture capital firm that makes multi-stage investments in Internet
technology companies. Accel Partners has over $6 billion of assets under management. Accel Partners
has invested in more than 300 successful companies such as Actuate, AdMob, Facebook, Real Networks
among others. Accel has offices in Palo Alto, California, London and Bangalore. Accel Partners has a
presence in China through their partnership with IDG.
Founded in 2005, Digital Sky Technologies is an Internet holding company with focus in the Russian-
speaking markets. The company has made investments in firms in social networking and
communications, e-payment solutions, online marketplaces, MMO and social games. DST has offices in
London and Russia.
Battery Ventures
Founded in 1984, Battery Ventures is a principal investment firm which invests in infrastructure
technologies (with a focus on cable infrastructure, network and wireless infrastructure, security software
and services, and computing and storage infrastructure), application software, communications services,
e-commerce products and services, tech enabled businesses, semiconductor and related products;
media and content, consumer technology and energy materials. Battery Ventures makes investments
ranging between $5M and $50M. Headquartered at Waltham, Massachusetts, Battery Ventures has
offices in Menlo Park, California and Herzelia, Israel.
Ben Horowitz and Marc Andreessen separately and together made a series of 40 angel investments in
early stage technology companies primarily in Silicon Valley between 2005 and 2009. In June 2009, Ben
and Marc created the venture capital firm named Andreessen Horowitz to increase their ability to invest in
and advise high technology companies.
In November 2010, Andreessen Horowitz raised a $650M fund. The venture capital firm has invested in
companies such as PicPlz, Bump Technologies, Factual, Viki, Tasty Labs, Proferi, BOKU, Foursquare,
Canvas Networks and Instagram.
Greylock Partners
Greylock Partners is a Venture Capital firm based in Menlo Park, CA which is focused on the enterprise
software and consumer Internet sectors. Founded in 1965, Greylock Partners has funded and helped
build several hundred successful companies, such as Ascend Communications, CheckFree, CipherTrust,
Constant Contact, Continental Cable, Data Domain, Decru, digg, DoubleClick, Facebook, Farecast,
Internet Security Systems, Ikanos, Legato, LinkedIn, Media Metrix, Millennium Pharmaceuticals,
Openwave, Open Market, Pandora, Redfin, Red Hat, RightNow Technologies, Success Factors, Tellabs,
Trilogy, Wily Technology, Workday and Zipcar.
Greylock primarily invests in Early Stage companies and occasionally invests in Growth Stage
businesses. The venture capital firm has offices in California, China, India, Israel and Massachusetts.
Kleiner Perkins Caufield & Byers (KPCB) is a well known Silicon Valley venture capital firm. Founded in
1972, KPCB was early investors in many significant companies such as Amazon, AOL, Compaq,
Electronic Arts, Google, Intuit, Macromedia, Netscape, Segway, and Sun Microsystems. The name of the
firm comes from the four founding partners: Eugene Kleiner, Tom Perkins, Frank J. Caufield, and Brook
Byers.
In March 2008, KPCB announced the iFund, a $100M investment initiative focused on ideas and products
related to the iPhone. In November 2010, KPCB raised a $650M fund.
Eric Lefkofsky
Series B Jan-07 $1M
Brad keywell
Total $1.12B
Andrew Mason, a founder, is the CEO of Groupon. Prior to starting Groupon, Andrew founded The Point
in November 2007 which had a good approach to online collective action and fund raising, the collective
action platform from which Groupon was born. Prior to The Point, Andrew was a developer at Inner
Workings. Andrew developed Policy Tree, a policy debate visualization tool, and won a scholarship to
attend the University Of Chicago Harris School Of Public Policy in 2006. In school for only 3 months,
Andrew dropped out after receiving an unexpected offer to fund the idea that would become The Point.
Rob Solomon is the President and COO of Groupon. Rob is also a venture partner at Technology
Crossover Ventures, a growth equity stage VC firm with $8 billion under management. Rob is also on the
board of directors at HomeAway.com. Rob has served on the boards of Tiny Prints and WidgetBucks.
Prior to Groupon, Rob served as President and CEO of SideStep, a real-time vertical search engine in the
travel category. Rob led successful turnaround at SideStep and $200 million all cash merger with kayak.
Prior to SideStep, Rob has served in multiple management roles at Yahoo Senior Vice President,
Commerce and Vice President/General Manager of the Yahoo Shopping Group. Prior to Yahoo, Rob has
handled product management and marketing positions at Electronic Arts, Cendant, Golfweb (funded by
Redpoint) and Zaplet.
Ken Pelletier is the CTO of Groupon. Ken is also the CTO of The Point. Prior to Groupon, Ken founded
NiKA software, an independent software consultancy. Prior to NiKA software, Ken was Senior Software
Architect at G2 Switchworks where he helped launch an online travel distribution platform. Prior to G2
Switchworks, ken was a senior software engineer at UBS. Ken also worked as a Contract Software
engineer at The Open Software Foundation and participated in the development of key public technology
offering. Prior to UBS, Ken was Director of Technology at Delphi Information Systems. Prior to Delhi, ken
was Director of Methods, Tools and Technology at McCracken Computer.
Ken holds a degree in Computer Science from Northeastern University. Ken has a keen interest in visual
design, cognitive science, linguistics, and has been a performing and recording musician.
Peter joined New Enterprise Associates (NEA) in 1992 and has served as Managing General Partner
since 1999. At NEA, Peter has led investments in over 20 information technology companies that have
completed public offerings or successful mergers, which included such industry pioneering companies
such as Amisys, CareerBuilder, InnerWorkings, Neutral Tandem, UUNET, and Vonage.
Prior to joining NEA, Peter was President and Chief Operating Officer of Legent Corporation (LGNT) and
Senior Vice President of the Systems Software Division of UCCEL Corporation (UCE). Prior to that, Peter
held a variety of management positions at General Electric Company.
Peter holds a BS in Electrical Engineering from Northwestern and an MBA from Dartmouth.
Kevin Efrusy
Kevin Efrusy is also a board member at NorthScale, Mig33 and Metacafe. Kevin had earlier served on the
board of BBN Technologies (acquired by Raytheon). Kevin is a General Partner at Accel Partners. Kevin
joined Accel Partners in 2003. Kevin invests primarily in consumer Internet services and SaaS/open
VRXUFHVRIWZDUH:LWKLQFRQVXPHUVHUYLFHV.HYLQOHG$FFHO¶VLQYHVWPHQWVLQ)DFHERRN*URXSRQ7XPUL
RAMP, Metacafe, Medio Systems and Mig33.
Within SaaS/open source software, he led investments or serves on the boards of Xensource (acquired
by Citrix for $500M), Genius, SpringSource (acquired by VMWare for $420M), Terracotta, Aptana, and
Northscale. Kevin built and served as the first CEO of IronPlanet, an online marketplace for heavy
equipment. Prior to IronPlanet, Kevin served as Entrepreneur-In-Residence at Kleiner Perkins Caufield
and Byers where he started Corio, an ASP/SaaS pioneer which went public on Nasdaq and was acquired
by IBM in 2005.
Kevin holds a MSEE, BSEE, and BA in Economics from Stanford University, and an MBA from the
Stanford Graduate School of Business.
Jason Fried
Jason Fried is the CEO and co-founder of 37signals, a Chicago-based private firm involved in building
web-based tools. Jason co-wrote all of 37signals books including their latest offering Rework. 37signals'
products include Basecamp, Highrise, Backpack, Campfire, Ta-da List, and Writeboard.
Brad Keywell
Brad is one of the founders of Groupon. Brad is the co-founder and Chief Executive Officer of MediaBank
LLC. Brad is the co founder of Echo Global Logistics, Starbelly, and several other companies. Brad is a
founder and Principal of ThePoint. Brad is the Managing Partner of Meadow Lake Management. Brad is
on the Board of the Zell-Lurie Entrepreneurship Institute at the University of Michigan, Big
Communications, Warrior Productions, and University of Michigan Hillel Foundation. Previously Brad was
with Equity Group Investments. Brad was President of HA-LO Industries which acquired Starbelly, a
technology firm which Brad founded in May 1999.
Eric Lefkofsky
Eric Lefkofsky is one of the founders of Groupon. Eric is also a co-founder and President of Blue Media, a
Chicago-based private equity and consulting firm focused on applied technology. Eric is also a founder at
Lightbank. Eric is the founder of InnerWorkings, Inc. (INWK: NASDAQ), a global provider of print
solutions. Through BLUE Media, Eric plays an active role in managing the operations of several large
technology firms such as InnerWorkings.
Eric is also the founder and a Director of several other firms, including Echo Global Logistics (a
technology-driven transportation outsourcing firm), MediaBank, a leading provider of integrated media
procurement technology and ThePoint, an online activism website.
Eric was previously the COO of HA-LO Industries. Prior to HA-LO Industries, Eric was the President and
one of the founders of Starbelly. Eric is on the Board of Directors of Children's Memorial Hospital,
Steppenwolf Theatre and The Art Institute of Chicago. Eric is also a member of the Chicago 2016
Olympic Committee. Eric is the author of Accelerated Disruption and a guest professor at Northwestern
University's Kellogg Graduate School of Business. Eric graduated from the University of Michigan and
received his Juris Doctor at University of Michigan Law School.
Ted Leonsis
Ted Leonsis is vice chairman of American Online. Ted has more than a decade of experience in global
Internet services and media at AOL, where he also served as vice chairman and president of several
business units. Ted retired from AOL in 2006. Ted had founded Redgate Communications which was
acquired by American Online in 1994. Ted is the owner of sports properties such as National Hockey
League's Washington Capitals and the Women's National Basketball Association's Washington Mystics.
Andrew Mason
John Walter
John is the retired President and COO of AT&T, and the former President and CEO of R.R. Donnelley &
Sons. He is a member of the Board of Directors of Deere & Company, Manpower, Inc., Novarra, Inc.,
Vasco Data Security International, Inc., Innerworkings, Inc., and SNP Corporation, Singapore. He is a
Trustee of Northwestern University, the Chicago Symphony Orchestra, and Evanston Northwestern
Healthcare.
Harry is a General Partner at NEA focused on technology and consumer investments. Prior to joining
NEA, Harry was a Partner at FBR Technology Venture Partners where he worked with several successful
startup teams. Early in his career, Harry managed strategy and technology initiatives in the financial,
energy and telecommunications industries for the Boston Consulting Group and Deloitte & Touche
Management Consulting. Prior to his business career, Harry served as an officer in the U.S. Navy. Harry
UHFHLYHG KLV 0%$ IURP +DUYDUG %XVLQHVV 6FKRRO DQG KLV EDFKHORU¶V GHJUHH LQ 3K\VLFV IURP 'XNH
University.
A better approach is to focus on a year when growth rate is slow enough, that small shifts in time period
do not sufficiently alter the valuation and then discount the value to the present assuming a cost of capital
and risk premium that is in line with a slower growth steady state mode.
Due to law of large numbers, any growth company will moderate to a slower growth rate of 15% a year (or
less) in a finite number of years. For the purposes of our report, we are assuming that subject companies
ZLOOUHDFKWKDW³VWHDG\VWDWH´OHYHOLQ± 5 years.
450
400
350
300
250
Steady State Growth
200
150
100
50
0
0 2 4 6 8 10 12 14 16
At 15% or lower growth rate, the market multiple (Exhibit A2) is then determined primarily by the yield on
ten year notes. Although yield at the time of writing could be higher due to loose monetary policy, we
believe eventually ten year notes will tend to trade closer to their historical averages of about 5%.
Accordingly, we are assigning a growth multiple of 25 for most of our subject companies based off steady
state revenue numbers and normalized net margins.
Most companies tend to focus on growth at the expense of profitability during early stages of growth.
Normalized net margins are the maximum profitability that a company could potentially achieve at any
revenue level. This could vary dramatically from actual net margins.
Exhibit A2: EV/Revenue Multiple as a Function of T-bill Rate and Revenue Growth
T Bill Rate
Revenue
2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
Growth
5% 34x 27x 22x 19x 17x 15x 13x 12x 11x 10x
10% 41x 32x 19x 23x 19x 17x 16x 14x 13x 12x
15% 50x 39x 32x 27x 23x 20x 18x 16x 15x 13x
20% 60x 47x 38x 32x 27x 24x 21x 19x 17x 15x
25% 72x 56x 45x 38x 32x 28x 24x 22x 19x 17x
30% 86x 66x 54x 44x 38x 32x 28x 25x 22x 19x
35% 102x 78x 63x 52x 44x 38x 33x 29x 25x 21x
40% 120x 92x 74x 61x 51x 43x 37x 33x 29x 24x
45% 141x 108x 86x 70x 59x 50x 43x 37x 32x 28x
50% 165x 125x 99x 81x 67x 57x 49x 42x 36x 31x
Formula:
P/E=(1-(g/ROEhg) x (1+g) x (1-((1+g)^n)/(1+khg)^n)/(khg-g)) + ((1-(gn/ROEst) x (1+ g)^n x (1+g)^n x (1+gn))/(kst-gn)x(1+khg)^n)
Assumptions:
Beta - 1
ROEhg ± return on equity in the high growth period, made assumption that it¶s 30%
Cost of equity khg=risk free rate (T-Bill)+ B (changed to 1.5 and 1) x (equity risk premium) (assumed 4%)
In our valuation methodology, we also have tried to look at comparable group of companies and estimate
their EV/Revenue multiple. We believe that adjusting for risk, the EV/Revenue multiple is a function of
growth rate (over the subsequent 2 ± 3 years from our reference year) and EBITDA margins. We may
attribute a higher or lower multiple than peer group based on these two variables as outlined in Exhibit
A3.
Exhibit A3: EV/Revenue Multiple as a Function of EBITDA Margins and Revenue Growth
Revenue Growth
EBITDA
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Margin
50% 2.5x 3.3x 4.0x 4.8x 5.6x 6.3x 7.1x 7.9x 8.7x 9.4x 10.2x
45% 2.3x 2.9x 3.6x 4.3x 5.0x 5.7x 6.4x 7.1x 7.8x 8.5x 9.0x
40% 2.0x 2.6x 3.2x 3.8x 4.5x 5.1x 5.7x 6.3x 6.9x 7.5x 8.2x
35% 1.8x 2.3x 2.8x 3.4x 3.9x 4.4x 5.0x 5.5x 6.1x 6.6x 7.1x
30% 1.5x 2.0x 2.4x 2.9x 3.3x 3.8x 4.3x 4.7x 5.2x 5.7x 6.1x
25% 1.3x 1.6x 2.0x 2.4x 2.8x 3.2x 3.6x 3.9x 4.3x 4.7x 5.1x
20% 1.0x 1.3x 1.6x 1.9x 2.2x 2.5x 2.8x 3.2x 3.5x 3.8x 3.1x
15% 0.8x 1.0x 1.2x 1.4x 1.7x 1.9x 2.1x 2.4x 2.6x 2.8x 3.1x
10% 0.5x 0.7x 0.8x 1.0x 1.1x 1.3x 1.4x 1.6x 1.7x 1.9x 2.0x
5% 0.3x 0.3x 0.4x 0.5x 0.6x 0.6x 0.7x 0.8x 0.9x 0.9x 1.0x
This report has been downloaded from SharesPost, Inc., but was prepared by Global Silicon Valley
Partners under the neXtup Research brand ("neXtup Research"). The views expressed in this report
correspond to our subjective views on the subject securities and issuers. This report does not purport to
be a complete statement of all material facts related to any company, industry, or security mentioned. The
information provided, while not guaranteed as to accuracy or completeness, has been obtained from
sources believed to be reliable.
This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any
sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to
registration or qualification under the securities laws of any such state.
Neither neXtup Research nor any of its employees own a direct or indirect long or short position in any of
the companies mentioned in this report.
The opinions expressed reflect our judgment at this time and are subject to change without notice and
may or may not be updated. Past performance should not be taken as an indication or guarantee of future
performance, and no representation or warranty, express or implied, is made regarding future
performance.
This research report was intended to provide background information for accredited or institutional
investors. Recipients who are not market professionals or institutional investors should seek the advice of
their personal financial advisor before making any investment decisions based on this report.