In case anyone was wondering why Groupon, the tech press’s favorite new punching bag, would restart its delayed road show and try to go public right now (during the biggest IPO backlog since 2000), there are a couple easy answers.
Bloomberg reports that Groupon (1) both needs cash to grow and (2) is close to the 500-shareholder threshold, at which point its required to report detailed financial information every quarter. Usually that’s the point where startups figure: Eh, might as well IPO.
Groupon, which is seeking to raise as much as $540 million, but only selling five percent equity, claims that it doesn’t need the money for at least a year and isn’t desperate for the cash. But as Bloomberg reports:
“Even so, the biggest provider of online daily deals owed almost twice as much to merchants at the end of September as it held in cash. Marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile. . . The company had $243.9 million in cash at the end of September and still owed merchants $465.6 million. The 8.4 percent increase in cash from the prior period was outstripped by the rise in marketing costs, which jumped 37 percent to $234.4 million.”
What happened to that $1.11 billion Groupon raised? Well, 85 percent was used pay off early investors and founders, including Andrew Mason, rather than funding growth. Hence, the cash crunch that Groupon, which issued an amended filing promising to spend less on useless marketing, now finds itself facing.
But none of this seems to have deterred institutional and retail investors. According to Bloomberg’s sources, the company is considering raising the price range for its stock since there’s higher-than-expected demand ahead of holiday season.