Why the Owner of Groupon Turned Down $6 Billion

The Eric Lefkofsky story absolutely fascinates me. Oh, you’ve never heard of him? You will. When Groupon, the Web coupon business, goes public this summer, this 41-year-old will be worth a cool $4 billion.

The remarkable thing about his story is that his success is built on a string of business failures.

Eric started his business career after his girlfriend dumped him during his freshman year at the University of Michigan. He was looking to vent his energy and started buying used carpet from trade shows and selling it to college students moving into the dorms. The business took off and he expanded it to five campuses. He claims he made a hundred grand one year and thought he was “the richest person on planet Earth.”

He parlayed that coup into buying an apparel company in Madison, Wisconsin, doing $2 million in sales, which he quickly grew into $20 million by expanding wildly. That company collapsed under its massive debt.

Eric tried another foray into licensed branded kids apparel in Columbus, Ohio. Another flop. He went to law school at the U of M through all this and got his law degree in 1994.

What he was learning was to weave stories about his magic touch in business and attract investors in his business ventures. He pivoted out of apparel into the Internet in the 1990s, starting Starbelly, a roll-up company that rode the bubble by buying another ill-fated Chicago roll-up firm specializing in personalized coffee cups and pens for business named Ha-Lo.

Eric had learned that it is always smart to cash out in case things fall apart, which is exactly what happened to Ha-Lo when the Internet bubble burst. Ha-Lo crashed and burned, but Eric had his stash and kept rolling.

He invested in a printing outsourcing firm called InnerWorkings, which he took public. It appears to be a viable, profit making business. He also has a trucking services outsourcing company.

The Groupon opportunity came when Andrew Mason, an ambitious techie in Chicago, asked him for money to fund a site to attract people to political meetings in 2006. Lefkofsky says he soon realized the idea would never make money, but he felt it could be tweaked into a vehicle to help customers save money and for businesses to attract new clients. And he saw in Mason the kind of driven visionary who could pilot the company with him and his partner, Brad Keywell, adding the financial piece.

Lefkofsky put up $1 million to bootstrap Groupon. At 36 years old he had made the connections and learned the lessons of how to go all out when you have a hot idea. The last five years he has played an unbelievably hot hand, attracting respected venture capitalists to back up his bet without trading away too much equity. He gambled by supposedly turning down $2 billion from Yahoo! and $6 billion from Google. He gambled that the public market would pay more, and what the heck, he’s playing with house money. The LinkedIn IPO validated his timing. The underwriters on Wall Street are valuing Groupon at $20 billion, even though the company will show a monstrous loss.

Is Lefkofsky a “fraud,” a “huckster,” a ponzi artist? No. He’s not a crook and he’s not hiding his failures. He’s teaching a course at the University of Chicago’s Booth School of Business and lecturing at Northwestern’s Kellogg School of Management.

He’s a restless guy. He’s messed up a lot and knows what that feels like. He’s an amazing storyteller. He can attract the dreamers and take their money. Guys like Lefkofsky change the world. At 41 years old he will take his Groupon stake and look for the next big fish, because that’s what he does. There is a lot to learn from him.

But, frankly, I wouldn’t touch the stock.

Question: What stocks would you buy right now if you had an extra $10,000 to gamble?

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3 thoughts on “Why the Owner of Groupon Turned Down $6 Billion

  1. Avatarmatt

    I gambled and bought my wife a MGB Roadster with the extra 10,000 I had…….seemed to be a good investment, and it will be fun, sometimes stocks don’t bring you much fun, and a lot of worries……..

     
  2. Lloyd GraffLloyd Graff

    Celanese the old chemical company has developed a process to make coal into ethanol. They are putting up production plants in Australia and China. With corn at $7.50 a bushel and oil at $100 a barrel the potential is enormous. Makes for a good story at least for us dreamers.

     
  3. AvatarMatt Klecka

    Cypress Semiconductor (CY) – Technology years ahead of the competition (high margin programmable chips). Positioned well in the tablet/smartphone age due to touchscreen technology.

    Zero barriers to entry for what Groupon does. Think I read about 42% of businesses that use their service will come back for more. They better IPO quickly or founders will regret passing on Google’s offer.

     

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