It’s nearly 2011, but a half-billion dollar infusion for Web startup Groupon has tech watchers wondering whether it’s 1999 all over again.
In the largest equity fundraising round for a closely held startup company since the mid-1990s, Groupon, which offers coupon deals, managed to raise $500 million as part of a share sale that could hit nearly $1 billion.
The bulk of the cash, or $344.5 million, will be used to cash out executives and directors. Groupon didn’t say which shareholders were selling.
Earlier this month, Groupon amended its certificate of incorporation, disclosing that its board had authorized a new financing round for as much as $950 million in preferred stock. Groupon, which opened its doors in 2008, has until next June to collect the remaining $450 million.
By comparison, Facebook raised $440 million between 2007 and 2009, including $240 million in a deal struck with Microsoft, followed by a $200 million stock sale to Russia’s Digital Sky Media, which is also a backer of Groupon.
Zynga, which makes the popular Facebook game “Farmville,” raised more than $300 million this year from investors, including Digital Sky Media and Japanese firm Softbank.
Justin Byers of research firm VC Experts said the last time a startup raised so much cash in one fell swoop was in 1995, when Microsoft co-founder Paul Allen plunked down $500 million to fund movie studio DreamWorks.
In the last two years, only five US-based venture-backed companies have raised a round of equity larger than $300 million, according to Dow Jones VentureSource. Groupon’s ability to attract funding in a tough economy, combined with reports that the Chicago-based company is in talks with traditional Wall Street institutions like Morgan Stanley, Fidelity and T. Rowe Price for additional financing, has some experts whispering the “B” word.
“There is a whiff of a bubble in technology generally,” said Harold Vogel, author of “Financial Market Bubbles and Crashes,” who attributes lofty valuations in tech to investors’ desperation for returns in a sideways market.
Vogel said he’s skeptical of Groupon’s ballooning valuation simply because “the concept itself is easy to replicate.”
Indeed, questions over Groupon’s future plans began percolating this month amid rumors that the company turned down a $6 billion buyout offer from Google. In light of the massive fundraising effort, market experts are now betting that Groupon is looking to go public before the end of next year.
Not everyone believes another dot-com bust is looming. Byers said there is a big difference between today’s startups and their 1990s predecessors: their willingness to grow organically and through acquisitions rather than rushing to cash out through an IPO.
“I would hope that it’s not another bubble,” Byers said. “I would hope that the investment houses have learned from the last bubble” about taking a company public before it’s ready, he said. [email protected]