DST (Digital Sky Technologies) just invested $135 million into social commerce service Groupon.
Like their previous investments in Facebook and Zynga, most of the capital provided by DST will be used to buyback equity from Groupon’s 90+ employees as well as their early investors. Interestingly, Groupon has only been in business for 18 months. That’s some serious shareholder value in such a short period of time.
Groupon uses social tools to attract buyers for a given product and uses its collective buying power to get low prices. If it reaches the number of buyers required for a deal, Groupon collects a fee from the business that receives the sale, and then distributes coupons to the buyers for the discount. Groupon claims to have saved consumes over $150 million.
With investments like this, there’s no question that the secondary market continues to heat up. In the 90′s, the horizon for an exit was about 3-4 years, while today the average exit horizon is much longer, 6-8 years. Also, most web 1.0 companies were very speculative, whereas today these companies are building real sustainable businesses with serious revenue and profits.
This round will hopefully help Groupon stay focused on their core business, rather than having to deal with employees selling shares into the secondary market as they continue to create shareholder value. Create a buyback program this early in their lifecycle could help them stay focused on the prize at hand.