University of Michigan grads, co-founders of Groupon, could become billionaires after IPO
The two University of Michigan graduates who helped start Groupon could become billionaires as a result of the daily deals website's planned initial public offering, according to documents filed Thursday with the U.S. Securities and Exchange Commission.
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Groupon, reportedly valued at as much as $25 billion by investors, told the SEC on Thursday that Lefkofsky owns 21.6 percent of the company's common stock and Keywell owns 6.9 percent. Lefkofsky is the company's largest shareholder.
At a $25 billion valuation, Lefkofsky's stake would be worth $5.4 billion and Keywell's would be worth $1.725 billion.
They would have the option of keeping their stock to maintain a level of control over the company in hopes of it continuing to grow, or they could liquidate their shares over time.
But the U-M grads have already reaped a windfall from Groupon's rise in the three years since the Chicago-based company was founded.
According to SEC documents reviewed by AnnArbor.com, Lefkofsky and his wife, Elizabeth Kramer Lefkofsky, have already sold off about $314.5 million in private stock to outside investors. Much of that was funneled through Green Media LLC, a private entity owned 50-50 by the Lefkofskys.
Keywell has not sold off any stock personally, but a legal entity called Rugger Ventures LLC — which is 80 percent owned by his wife, Kimberley Keywell, and 20 percent owned by his children — has liquidated $156.64 million in private stock so far.
That's possible because wealthy institutional investors and even sometimes individuals can buy private stock from tech companies before they go public in a relatively new move that has reportedly drawn the attention of the SEC.
Keywell and Lefkofsky, longtime friends and investment partners, earned bachelor’s and law degrees from U-M in the early 1990s. After graduating, they started careers of creating and investing in startup companies and growing them into global businesses.
In an interview with AnnArbor.com in January, Keywell said he continues to visit Ann Arbor regularly as a member of the U-M Ross School of Business' Zell Lurie Institute for Entrepreneurial Studies advisory board.
Keywell, who serves on Groupon’s board but is not involved in its day-to-day operations, declined to discuss Groupon’s corporate strategies.
He also wouldn’t say whether Groupon would ever consider launching an office in Ann Arbor, where Google opened an office in 2006.
Groupon had 7,107 employees as of March 31, up from 37 on June 30, 2009, the company said in its filing.
“Explosive growth needs discipline in order to continue,” Keywell told AnnArbor.com in January. “Explosive growth needs a culture in order to continue well. And explosive growth needs to be facilitated by a fabulous business model.”
The firm had $644.7 million in revenue with 28.1 million Groupon offers sold in the first quarter of 2011.
“Our employee headcount and number of subscribers have increased significantly since our inception, and we expect this growth to continue for the foreseeable future,” the company said. “To effectively manage our growth, we must continue to implement operational plans and strategies, improve and expand our infrastructure of people and information systems, and train and manage our employee base.”
To be sure, Groupon's valuation will be based on market demand and could turn out to be significantly less than investors have estimated.
And the company itself acknowledges the incredibly competitive nature of its business. Rivals like Amazon.com-backed Living Social and smaller competitors like regional services like AnnArbor.com's The Real Deal present an ongoing threat.
The company’s business model involves selling coupons for retail products or services in specific metropolitan markets. Groupon reportedly keeps a portion of the revenue from the deal, and the client keeps the rest.
"Our business is highly competitive, and competition presents an ongoing challenge to our success. We expect competition in the Internet business generally, and the group buying business in particular, to continue to increase because there are not substantial barriers to entry," the company said.