WSJ: Groupon investors jumping ship as stock price plummets

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Early investors of deals website Groupon are reportedly jumping ship as the company struggles with a plummeting share price and is now worth a quarter of what it launched its IPO back in November, according to the Wall Street Journal.

The report claims that at least four investors who held stock before the IPO have sold or reduced their holdings significantly in recent months. Andreessen Horowitz, co-founded by Netscape’s Marc Andreessen, reportedly sold its shares on June 1. While it did get $14 million in profit, according to Business Insider, “it’s also not the sort of return that Andreessen Horowitz is used to getting on its investments”.

The WSJ report also highlights Andreessen’s concerns of an IPO launch – and was one of several advisers urging not go to through with it because they feared that it would not withstand scrutiny of high marketing costs and other IPO-related costs. However, they did not have a vote on the board of Groupon as they were board observers.

Other investors, like Morgan Stanley and T. Rowe Price have increased their stake in the company. But they’re also people who also invested in Facebook, and look what’s happening to that now.

So how did Groupon become a mess? Investors are worried about its business model. The company, as revealed in its disclosure of finances in June 2011, spent much more what people thought in acquiring new customers. One financial analyst has called Groupon as “operating like a Ponzi scheme” and that it was in effect insolvent because it was paying investors with other investors money.

The company has been battered with negative complaints by small business owners over the lack of control they have on the deal, like setting a limit – especially in the UK. This has a potential affect of scaring away small businesses to provide deals on the site. The company has also stiff competition with more than 500 sites competing globally with the same business idea – sharing a coupon.

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