Greed, chutzpah, arrogance. Everyone seems to have their own idea about what motivated Groupon Inc. to turn down a buyout offer of a reported $5 billion to $6 billion from Google Inc. last week.
Neither company is commenting about the negotiations or Groupon's decision. Their silence leaves a substantial vacuum for outsiders to debate whether the Chicago start-up's decision was foolish or brilliant. While the headline-grabbing bid dominated the chatter, other variables such as corporate culture and the viability of alternative exit strategies for investors probably played a major role in Groupon's thinking.
Evaluating Groupon's decision is especially vexing because the private company is expanding at a whirlwind pace, making any kind of outside valuation difficult. A Forbes cover story in August called the start-up "the fastest-growing company ever." Published reports have put its annual revenues at $500 million, while the All Things Digital blog said Friday that Groupon stands to rake in $2 billion in sales in 2010.
"No one really knows what happened behind closed doors," said Lon Chow, general partner at Apex Venture Partners in Chicago. "Let's also not forget that Groupon is one of the fastest-growing venture-backed companies ever in terms of revenue ramp. They have plenty of options."
Other factors are also important in corporate negotiations, including financial details such as earn-outs, which are incentives for executives at the target company to hit certain performance goals.
"Deals tend much more to break up over those kinds of issues," said Lou Kerner, an analyst at Wedbush Securities. "My guess would be [Groupon's decision] didn't come to fruition just over price."
Corporate culture is another crucial consideration.
Tony Hsieh, the chief executive of online apparel retailer Zappos, turned down a buyout offer from Amazon in 2005. In an adapted excerpt of his book published in Inc. magazine in June, Hsieh said he feared being "folded into [Amazon's] operations," which would have put Zappos' "brand and culture at risk of disappearing."
"That was why we told Jeff [Bezos, Amazon's CEO] that we weren't interested in selling at any price," Hsieh wrote. "I felt like we were just getting started."
In 2009, Zappos accepted an $850-million offer from Amazon. Groupon may see itself where Zappos was in 2005 — unwilling to be absorbed into a larger company at a young age.
Groupon CEO Andrew Mason is known for his quirky sense of humor, which is evident in the company's e-mailed daily deal notifications and its office decor. Many members of the sales and writing staff have backgrounds in improvisational comedy.
"I've been to some Bay Area offices and never seen a sheet fort," said Geoff Domoracki, chief executive of Chicago technology start-up consultancy midVentures, referring to a somewhat famous tent fort at Groupon headquarters. "Google's culture is engineers and algorithms.… Groupon is extremely content- and publishing-oriented in terms of the core competencies of the people and the values represented by that culture. It would be a culture clash if Google acquired Groupon."
Start-ups have traditionally faced a binary choice when it comes to pleasing their investors: get acquired or go public. But industry players say Groupon has other options. In April, for example, when the company raised $135 million from Digital Sky Technologies and Battery Ventures, part of the money went to employees and early investors.
Another avenue for Groupon might be the secondary market. Jonathan Pasky, senior vice president of corporate development at midVentures, said an increasing number of firms are interested in buying stock or stock options in private companies from investors and employees. Facebook is one company whose stock has changed hands in this manner.
Groupon's earliest financial backers were Chicago-area entrepreneurs Eric Lefkofsky and Brad Keywell, who remain board members. Two of the pair's portfolio companies have held initial public offerings. Others, including Groupon, have stayed independent. This strategy puts Groupon in good company. Facebook and Yelp, for example, have continued to grow after reportedly spurning buyout offers and holding off on going public.
In a Monday statement, Yelp noted that in the last 12 months, its monthly traffic has hit 38 million unique visitors and its total number of reviews has gone from 8 million to more than 14 million.
"Yelp has all the makings of a great independent business," the company said.
Domoracki, who has worked for Lightbank, which is Lefkofsky's and Keywell's investment firm, said the investors' influence may help explain why Groupon rejected a buyout offer.
"Venture capitalists like to put their money in and get [companies] acquired; that's how they make their money," he said. "Groupon will tell you a different story because some of the founders, Brad and Eric, are also the investors, and they're more invested in the long term.... Eric and Brad haven't sought a strategy to get any of [their companies] acquired."
In the meantime, the parlor game around divining Groupon's valuation and future will continue.
"It's a spectator sport," Chow said, "and I think people have a lot of fun with it."