University of Michigan grads, co-founders of Groupon, could become billionaires after IPO
The two University of Michigan graduates who helped start Groupon could become billionaires as a result of the daily deals website's planned initial public offering, according to documents filed Thursday with the U.S. Securities and Exchange Commission.
U-M grad Brad Keywell, a founder of Groupon, could become a billionaire after Groupon's IPO.
Photo courtesy of LightBank
Groupon, reportedly valued at as much as $25 billion by investors, told the SEC on Thursday that Lefkofsky owns 21.6 percent of the company's common stock and Keywell owns 6.9 percent. Lefkofsky is the company's largest shareholder.
At a $25 billion valuation, Lefkofsky's stake would be worth $5.4 billion and Keywell's would be worth $1.725 billion.
They would have the option of keeping their stock to maintain a level of control over the company in hopes of it continuing to grow, or they could liquidate their shares over time.
But the U-M grads have already reaped a windfall from Groupon's rise in the three years since the Chicago-based company was founded.
According to SEC documents reviewed by AnnArbor.com, Lefkofsky and his wife, Elizabeth Kramer Lefkofsky, have already sold off about $314.5 million in private stock to outside investors. Much of that was funneled through Green Media LLC, a private entity owned 50-50 by the Lefkofskys.
Keywell has not sold off any stock personally, but a legal entity called Rugger Ventures LLC — which is 80 percent owned by his wife, Kimberley Keywell, and 20 percent owned by his children — has liquidated $156.64 million in private stock so far.
That's possible because wealthy institutional investors and even sometimes individuals can buy private stock from tech companies before they go public in a relatively new move that has reportedly drawn the attention of the SEC.
Keywell and Lefkofsky, longtime friends and investment partners, earned bachelor’s and law degrees from U-M in the early 1990s. After graduating, they started careers of creating and investing in startup companies and growing them into global businesses.
In an interview with AnnArbor.com in January, Keywell said he continues to visit Ann Arbor regularly as a member of the U-M Ross School of Business' Zell Lurie Institute for Entrepreneurial Studies advisory board.
Keywell, who serves on Groupon’s board but is not involved in its day-to-day operations, declined to discuss Groupon’s corporate strategies.
He also wouldn’t say whether Groupon would ever consider launching an office in Ann Arbor, where Google opened an office in 2006.
Groupon had 7,107 employees as of March 31, up from 37 on June 30, 2009, the company said in its filing.
“Explosive growth needs discipline in order to continue,” Keywell told AnnArbor.com in January. “Explosive growth needs a culture in order to continue well. And explosive growth needs to be facilitated by a fabulous business model.”
The firm had $644.7 million in revenue with 28.1 million Groupon offers sold in the first quarter of 2011.
“Our employee headcount and number of subscribers have increased significantly since our inception, and we expect this growth to continue for the foreseeable future,” the company said. “To effectively manage our growth, we must continue to implement operational plans and strategies, improve and expand our infrastructure of people and information systems, and train and manage our employee base.”
To be sure, Groupon's valuation will be based on market demand and could turn out to be significantly less than investors have estimated.
And the company itself acknowledges the incredibly competitive nature of its business. Rivals like Amazon.com-backed Living Social and smaller competitors like regional services like AnnArbor.com's The Real Deal present an ongoing threat.
The company’s business model involves selling coupons for retail products or services in specific metropolitan markets. Groupon reportedly keeps a portion of the revenue from the deal, and the client keeps the rest.
"Our business is highly competitive, and competition presents an ongoing challenge to our success. We expect competition in the Internet business generally, and the group buying business in particular, to continue to increase because there are not substantial barriers to entry," the company said.
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
Peter Nelson
Sun, Jun 5, 2011 : 12:19 a.m.
How does the "business news director" of AnnArbor.com write a story about the Groupon IPO and not mention the recent financial concerns with the company? This story reads like a press release - this is *not* reporting. From what I've read, Groupon is $230 million in debt, owes $290 million to retailers that they do business with... and when they raised $1.08 BILLION last year in funding, $930 million went to pay back their original investors! And now they're planning an IPO? Here's some good reading... <a href="http://shortlogic.tumblr.com/post/6142108636/groupon-ipo-pass-on-this-deal" rel='nofollow'>http://shortlogic.tumblr.com/post/6142108636/groupon-ipo-pass-on-this-deal</a> <a href="http://www.minyanville.com/businessmarkets/articles/groupon-groupon-ipo-tech-stocks-linked/6/3/2011/id/34936" rel='nofollow'>http://www.minyanville.com/businessmarkets/articles/groupon-groupon-ipo-tech-stocks-linked/6/3/2011/id/34936</a>
CynicA2
Sun, Jun 5, 2011 : 1:52 a.m.
Yup... good links. Ponzi, Enron, and Madoff, all rolled into one! I thought this fish smelled bad from the gitgo, and sure enough, that's how it's shaping-up. It'll be interesting to see who ends-up holding the bag on this deal.
Sallyxyz
Sat, Jun 4, 2011 : 3:52 a.m.
I guess these guys will be at the top of the list for UM's aggressive fundraising machine. Those slick fundraisers will be falling over each other to get their hands into Keywell's and Lefkofsky's pockets.
Tom Joad
Sat, Jun 4, 2011 : 2:07 a.m.
Groupon meet Webvan. This blog in the NYT sums it up nicely. <a href="http://boss.blogs.nytimes.com/2010/11/23/doing-the-math-on-a-groupon-deal/" rel='nofollow'>http://boss.blogs.nytimes.com/2010/11/23/doing-the-math-on-a-groupon-deal/</a>
notnecessary
Sat, Jun 4, 2011 : 12:54 a.m.
@A2Scooter - You are very wrong. They are benefiting 1000s of people daily. They are allowing people to experience new businesses in their area for a low price and allowing local business owners to a low-cost high-impact marketing option. Their work directly has created hundreds or thousands of jobs and indirectly impacted millions. If every smart person worked for no profit, who would be create the value to fund those altrustic projects? Answer, we'd all be in misery.
Sallyxyz
Sat, Jun 4, 2011 : 3:54 a.m.
"Their work directly has created hundreds or thousands of jobs" Can you be more specific and site examples of thousands of jobs created because of Groupon?
John B.
Fri, Jun 3, 2011 : 11:17 p.m.
The coupons are generally 'half-off' ones, from what I've seen. Groupon takes 50% of what's left (i.e. 25% of the 'full price'). That leaves 25% for the merchant. A merchant can't even hope to break even at 75% off, but supposedly they are 'buying' customers that might return later (unlikely, in my opinion). The only good thing is that some percentage of the coupons get "spoiled" (never redeemed), so that helps offset the merchant's losses. Really, all they are doing is teaching customers to wait for deep discounts before they buy. Sort of like slitting one's own throat (for the merchant), in some ways....
say it plain
Sat, Jun 4, 2011 : 11:25 p.m.
Ah, then the magical 'showing' of a ROI must be the stuff of this dream IPO lol. Wondrous, wondrous thing then. If this is even true, and who would put it past companies these days to claim lots that really isn't ;-) , then one can still argue that they do little for us of 'value'. Of course, none of that matters for IPOs, but we can still comment about that, can't we?! Yes, yes, marketing, very important...
johnnya2
Sat, Jun 4, 2011 : 4:22 a.m.
The industry term is not spoiled. It is called shrinkage. A full 20% never get redeemed. That works for gift cards as well. Your "opinion" does not matter in the face of real facts. Many customers do return and even those that only come once come with a profit. I guess you do not understand the concept of marketing and paying for it. By the way, groupon does provide a verifiable ROI. A TV ad rarely shows a verifiable ROI., Yet companies still do it. I guess you are more successful than any company that advertises. Tell us all oh wise one, what company you have made a fortune with. Until then just shut up and learn from people who have facts instead of your "opinion" which is unsubstanitated by any facrs.
CynicA2
Sat, Jun 4, 2011 : 2:18 a.m.
Thousands lined-up to buy overpriced tulip bulbs in Holland during "tulip mania" (one of THE classic bubbles), and they kept lining-up right up to the day the whole thing collapsed. No one ever went broke underestimating the intelligence of the American public. Classic.
notnecessary
Sat, Jun 4, 2011 : 12:56 a.m.
And who is forcing the merchants to sign up?...oh wait, theres waiting lists of 1000s to get on groupon and they have to be extremely selective. Hmm, if everyone wants to be on there I guess everyone wants to commit their own suicide. Yeah, that makes sense.
CynicA2
Fri, Jun 3, 2011 : 7:46 p.m.
Welcome to Tech Bubble II! Soon to be followed by Tech Bust II! The recent spate of tech IPOs soooooo reminds me of 1998-'99. I bet it ends the same way, too. These two clever fellows may end up overnight billionaires, but I bet the whole thing unravels just as quickly as it blew-up. Coupons have been around for a long time, and there is no free lunch. There is less to Groupon than meets the eye.
CynicA2
Sat, Jun 4, 2011 : 2:09 a.m.
Right! Charles Ponzi would be proud of this "deal"!
John B.
Fri, Jun 3, 2011 : 11:36 p.m.
...and the two families at the top will still be billionaires after it crashes, because they are cashing out as fast as they can, and will continue to do so until they no longer can, but almost everyone else (most of whom have been significantly underpaid up to that point) will be out of work and left with no equity. Great system we have, huh?
craigjjs
Fri, Jun 3, 2011 : 6:32 p.m.
Millions for a company that has yet to make a profit. Now that's something for us all to be proud of.
StartupGeek
Fri, Jun 3, 2011 : 1:34 p.m.
@A2Since74 , DST is Digital Sky Technologies. A super VC that invested in Groupon among others. <a href="http://www.arcticstartup.com/2011/01/12/dst-uncovered-russian-super-vc-invests-into-groupon" rel='nofollow'>http://www.arcticstartup.com/2011/01/12/dst-uncovered-russian-super-vc-invests-into-groupon</a>. Techbrewery.org for more info.
A2Scooter
Fri, Jun 3, 2011 : 12:39 p.m.
Wow. Another example of "entrepreneurs" becoming billionaires. What product is it they offer again? Hmmm. And their only tie to the area is an advisory council at the B-school? Ann Arbor should be beaming with pride. I'd be more impressed if they founded something that actually benefited someone other than themselves. Clearly, they've mastered moving around other people's money. I especially like the "legal entities" formulated of their wives and children so that they can liquidate millions in private stock. I'd be smiling, too. Who's the vulture? The fact that they're U-M grads doesn't change the fact I couldn't care less about their story.
A2Scooter
Thu, Jun 16, 2011 : 1:23 p.m.
Jealous? You're kidding, right? The only reason I even read this article was BECAUSE it implied some local ties to successful "entrepreneurs". I had never even heard of Groupon until reading this non-story. Unlike some of those who commented here who DO have obvious admiration for these people, I choose not to spend my time with my nose plastered deep inside the WSJ. If my goal in life was to make perceived truckloads of cash for doing absolutely nothing of worth, then yes, I'm jealous. As it is, I have to actually WORK all day to support my family. I'll still sleep soundly LONG after these brilliant business minds are out of the news and their company has folded.
say it plain
Sat, Jun 4, 2011 : 11:20 p.m.
oops...yes, @CynicA2, I knew it wasn't *that* financial genius lol, but a different, related one that almost named the b-school! And lord, how can one argue that Groupon provides 'value'?! They're coupon service for goodness-sake. What people are willing to consider as valuable makes it clear why we're due for bubbles after bubbles, gee.
Mark Wilson
Fri, Jun 3, 2011 : 9:41 p.m.
While I think the price discussed for this IPO is very unrealistic, this comment betrays more than a little jealousy. Groupon does provide a valuable service. Its the same service provided by coupons you find in a newspaper or online. For example, through Groupon, I purchased a 1 month membership at the Polo Fields for $65. I played 5 times for a fraction of the standard monthly fee and I didn't have to make a 2 year commitment or promise to spend $100 in the restaurant. More than 200 other people agreed and used this Groupon.
CynicA2
Fri, Jun 3, 2011 : 7:57 p.m.
Actually, I think it was almost named the (Ivan) "Boesky School of Business", yet another financial criminal. A former prof at the b-school told me that. I always thought that was funny - apparently he offered a very generous contribution to the school if they named it after him. I wish they would have, as it would more accurately reflect what they teach there.
EyeHeartA2
Fri, Jun 3, 2011 : 5:34 p.m.
Jealous much?
say it plain
Fri, Jun 3, 2011 : 2:36 p.m.
No, I think obviously there is 'care'...in the same way I do lol... which is to say that this 'business model' is imho one that does nothing of value for our world, and which reflects merely a very smartly strategized set of business moves that will them lots o' money and do little else for us all. I don't particularly care for this 'story' as a point of Ann Arbor pride, but I wouldn't doubt that there are many in the business community locally regionally nationally internationally who will look on in admiration lol. I'm just glad we didn't end up watching them graduate from the Michael Milken school of business, there but for the grace of the gods did that fail to happen ;-)
winner
Fri, Jun 3, 2011 : 1:06 p.m.
and thats why you read and commented.... because you don't care?
A2Since74
Fri, Jun 3, 2011 : 11:58 a.m.
Dug, what is DST and who and what is the Tech Brewery? Thanks.
Rod Johnson
Fri, Jun 3, 2011 : 6:19 p.m.
Google is your friend. (DST = Digital Sky Technologies)
Lac Court Orilles
Fri, Jun 3, 2011 : 11:23 a.m.
Unlike Slick Rick Snyder the Nerd, these young entrepreneurs just didn't hang around the university like vultures looking to sell patented technology developed by professors and students with Federal tax dollars to the Chinese.
johnnya2
Sat, Jun 4, 2011 : 4:17 a.m.
If it offers nothing to the world than why do people buy them? maybe the deals arent for YOU, but many are great offers. I guess google didnt do anything either, since who really needed a new search engine or smart phone OS. Microsoft wasnt needed either, I mean what do computers in a home really do.
say it plain
Fri, Jun 3, 2011 : 2:32 p.m.
Funny. They instead have a business model that relies on snarky sizzle-selling, providing nothing whatsoever of "value" to our world.
Steve Pepple
Fri, Jun 3, 2011 : 12:34 p.m.
A comment containing a personal attack against another commenter has been removed.
Dug Song
Fri, Jun 3, 2011 : 11:10 a.m.
Best read on their S-1 I've seen: <a href="http://www.quora.com/Groupon-IPO-S-1-Filing-June-2011/What-are-the-most-notable-aspects-of-the-Groupon-S-1/answer/Rakesh-Agrawal-2?srid=4Y" rel='nofollow'>http://www.quora.com/Groupon-IPO-S-1-Filing-June-2011/What-are-the-most-notable-aspects-of-the-Groupon-S-1/answer/Rakesh-Agrawal-2?srid=4Y</a> Another take on this from the Valley: <a href="http://www.mercurynews.com/business/ci_18194782" rel='nofollow'>http://www.mercurynews.com/business/ci_18194782</a> I think it's safe to say DST and the influx of Russian capital has totally changed the landscape in the last two years, as have the secondary markets where such private stock is trading (like Second Market or Sharespost - whose Chief Engineer is in the Tech Brewery with us). Amway : Grand Rapids :: Groupon : Chicago ?
John B.
Fri, Jun 3, 2011 : 11:32 p.m.
The analysis by Rakesh is quite interesting - thanks!!!