Earlier this month I wrote an article on Business Insider explaining how I believed Groupon may have used Google as its BATNA (best alternative to a negotiated agreement) to create more liquidity, and it appears they may have done just that.
According to the SEC Form D filing by Groupon, they just closed on $500 million of a $950 million round they are raising. Interestingly, the filing also states that existing shareholders will receive $344 million in liquidity in this round. While the filing is not 100% clear what portion, if any, of the $344 million is founders liquidity, I assume both the founders and existing investors are receiving liquidity in this round.
Under Item 16 of the Form D filing, which is the Use of Proceeds section, it asks the Company to provide the amount of the gross proceeds of the offering that has been or is proposed to be used for payments to any of the persons required to be named as executive offers, directors or promoters in response to Item 3 in the Form D filing. Groupon listed that they will use $355,547,138, and gave the following clarification for the use of proceeds:
A portion of the gross proceeds will be used to pay for shares repurchased by the Issuer in a tender offer for shares held by, among others, certain of the persons named in response to Item 3 above and/or their respective affiliates.
According to Fred Wilson of Union Square Ventures, entrepreneurs often have to hold out longer than VCs in order to get a good exit, and he explains that if that’s the case, its entirely reasonable to provide some founders liquidity to them. Fred goes on to explain:
“I’ve also seen entrepreneurs choose to sell the company prematurely because they want to take some money off the table. If offered the opportunity to take a bit off the table and swing for the fences, many would prefer to do that“.
That appears to be the case with Groupon. Perhaps Google’s $6 billion offer to acquire Groupon was premature, and in order to swing for the fences, I think its reasonable to provide founders liquidity. Remaining private and utilizing the secondary markets for some liquidity in return for the that risk is the best case scenario for Groupon in my opinion. They remain in control of their business and its direction, they maintain their entrepreneurial spirit, there’s less scrutiny from the SEC and they take some cash off the table. Not a bad!
Additionally, it appears Groupon may have used a broker to source this deal, as Item 15 “Sales and Commission & Finder’s Fees Expenses” is checked off with $7,500,000 listed as a Finder’s Fee for the raise. It’s unclear if the Finder’s Fee is for the entire $950M or just the recent $500M for this portion of the round. We’re seeing more brokers involved in secondary transactions, helping to bring more liquidity to the secondary markets. I think this is great for accredited investors interested in investing in high growth technology companies that they would otherwise not have been exposed to. Generally these companies have been reserved for the institutional venture capital investors. These brokers are helping the market by creating more liquidity and more favorable terms to the founders, their shareholders and employees by increasing the demand for their shares. Its great for all parties.
Well played Groupon. Well played.