Originally posted on Forbes.com
Everybody in the tech business has a friend or a friend of a friend who sold out for several million. Yapping about the prolific growth of startups gone by makes for easy–but banal–cocktail banter. Then there’s Groupon, a company that’s been around for two years and could reportedly fetch $6 billion from Google. Now that’s a story worth dissecting over a single malt.
There’s no need to rehash Groupon’s business model here, but for those who are curious, we dubbed Groupon the fastest growing company ever in an August cover story.
Prescient Cover
The company’s profile has exploded since then, but Groupon hardly needed help from us. An April capital raise had valued the company at $1.35 billion when it was a mere 17 months old.
If Google indeed pays $5-$6 billion for Groupon, it will likely be shelling out at least six times revenues for the company. That’s not a zany valuation for a two-year-old startup. Happens all the time. But for a company that’s already at $1 billion in revenue? That does not happen all of time. In fact, it just doesn’t happen. Ever.
The Wall Street Journal reports that Groupon’s board is discussing Google’s offer right now. What’s to discuss? Apparently there are parties inside Groupon who think an IPO may be a wiser play. And we know investment banks–including Morgan Stanley–have been jockeying for underwriting opportunities with Groupon for at least a year.
The fact that Groupon has options–good ones–explains the size of Google’s bid.
Groupon has fashioned a nifty borehole straight into the marketing budgets of small businesses all over the country (and planet). Google has had difficulty cracking exactly these prospects. Same with everybody else out there. Groupon’s name carries weight with these merchants and its sales force, while certainly something Google could build on its own, can’t be put together overnight.
Groupon realizes its opportunity. The board will take its time. Andrew Mason and Eric Lefkofsky are two men who have never been aiming small. That’s been clear since the first time I met Andrew three years ago, pre-Groupon. It’s a fact that was reinforced when Groupon brushed off Yahoo’s earlier offer to buy it for a reported $3 billion. That sale would have launched Lefkofsky, the largest Groupon equity holder, to billionaire status.
Now, both Lefkofsky and Mason stand to become billionaires.
No matter what happens, the other clear winner here, beyond Groupon, is the tech community of Chicago. The city is a magnet for graduates of nearby top-notch computer science programs, but has never gained a shadow of the traction enjoyed by Silicon Valley or Boston. Lots of good ideas spring from Chicago and the area (Netscape, one of the first dominoes of this Web saga, was kindled at the University of Illinois), but those companies usually bee-line to California.
A $6 billion infusion from Google would enrich lots of Groupon Chicagoans. The best thing for Chicago, of course, would be a kind of Groupon mafia who could spawn new area tech companies and investments the way progeny from Google, Facebook, PayPal and others have done in the Valley.
The term mafia has been used to describe exactly this effect before, especially when it comes to PayPal and now Y Combinator, but nowhere will it be as ironic–or as important to its city–as a new mafia would be in Chicago.
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