TAGS
“Lets start having fun… lets get funky… let’s announce everything… let’s be WILDLY positive in our forecasts… lets take this thing to the extreme… if we get wacked [sic] on the ride down-who gives a shit… THE TIME TO GET RADICAL IS NOW… WE HAVE NOTHING TO LOSE…”
This is a from the dot-com era. It’s pretty much what you’d expect a novice executive to say back then, when it was all about money and not at all about creating something good. It was written in an email by the co-founder of a company called Starbelly.com, which labeled itself a B2B provider — back when people greeted that phrase with a straight face.
In early 2000, Starbelly sold itself to another company called Ha-Lo Industries for $240 million, much of which went to the author of those words, a man named Eric Lefkofsky. Not long after that transaction, Ha-Lo declared bankruptcy. Shareholders and others blamed the Starbelly deal, and a series of lawsuits ensued.
Eric Lefkofsky is the co-founder and chairman of Groupon, which valuing the company at $30 billion, as well as its largest shareholder, with a pre-IPO 22% stake in the company. The other co-founders include Andrew Mason (8% stake), the cherubic public face of Groupon; and Bradley Keywell (7% stake), who also co-founded Starbelly with Lefkofsky. Before Starbelly, Keywell and Lefkofsky founded a sportswear company called Brandon Apparel.
So why should such an old quote matter? Everyone remembers things they said a decade or more ago they may regret today. And failure is hardly something to be ashamed of in tech; usually it’s heralded as a mark of having shot for the moon, something to be prized and not frowned upon.
But Groupon’s IPO has brought an uncomfortable spotlight onto Lefkofsky. While some attention focuses on his , others see a “” and draw parallels between . Lefkofsky’s track record, reflecting failures and successes, bears certain hallmarks: rapid revenue growth accompanied by big losses, a penchant to sell stock early on, and lawsuits filed by investors, lenders or customers who feel they have been wronged.
Lawsuits unleashed
Cashing out
Yet even after Lefkofsky’s 18 years of experience as an entrepreneur, he still stumbled last week. After Bloomberg TV dug up some old dirt, Lefkofsky responded that Groupon would be “.” Now Groupon may need to refile its prospectus to clarify that heady prediction.
A new filing would also serve shareholders by clarifying Lefkofsky’s role at Groupon. If nothing else, the Sports Publishing lawsuit reveals that Lefkofsky may have been far more involved with InnerWorkings than its SEC filings indicated. In Groupon’s IPO filing, CEO Andrew Mason confessed he only created Groupon “.” Groupon may be thriving because of Mason’s management skills, but it’s still not clear how much control Lefkofsky has over the company.
That question should concern investors because Lefkofsky and his family have from Groupon before the IPO filing. (Keywell and his family cashed out $156 million, Andrew Mason, $10 million). The risk is that Groupon will follow in InnerWorkings’ footsteps and start trading with a small float. Then a few months later, after demand has pushed up the stock price, insiders will unload more shares in a follow-on offering. That could weigh down Groupon’s longer term price, by putting more shares into the market than demand can meet. Lefkofsky and other insiders control voting rights, so any investors who don’t like it will have little power to agitate for change.
In the debate that has arisen around the Groupon IPO, and are arguing over whether Groupon is another Amazon, which took on years of massive losses to build a big “moat” that fended off competition. But there is another key difference between Amazon and Groupon: Amazon founder Jeff Bezos has a brilliant instinct for navigating risk, as he made clear in comments during Amazon’s . Few Amazon shareholders are angry with Bezos: the stock has returned 12,400% since its 1997 IPO.
Lefkofsky, who like Bezos began his entrepreneurial adventures in 1994, is equally intimate with risk, but with a track record nowhere nearly as impressive. He knows how to generate big revenue through even bigger losses, often to destructive effect. Lefkofsky summarizes his credo as “.” And, apparently, cash out fast.
That ethic may be fine in the world of private equity, where investors usually have enough net worth and sophistication to stomach such risk. But it’s another matter entirely in the public markets, where middle class investors can be seduced by the allure of a hot tech IPO.
A close look Lefkofsky’s track record shows that, while he’s learned from early failures, he’s not the new Bezos. Groupon’s IPO prospectus . Factor in Lefkofsky’s checkered past, and this IPO is waving more red flags than a May Day parade.
Clarification: An earlier version of this story incorrectly stated that insider selling in a follow-on offering could dilute existing shareholders.
.
