Deals

Groupon set to raise nearly $1B

Some investors are about to get a deal.

Groupon, the fast-growing Chicago startup that dominates the daily-deal category, has filed revised articles of incorporation that give it the right to issue $950 million in shares, according to VC Experts, a site that analyzes corporate filings. And CEO Andrew Mason just posted a confirmation on Twitter that the company is in the midst of raising a new round of financing.

If it raises the entire amount, Groupon could be worth as much as $7.8 billion — a milestone that would leave speechless critics who derided Mason’s decision to pass up an offer from Google to buy the company for $6 billion.

Interestingly, Groupon’s new investors appear to be getting better terms than DST, the Russian Internet holding company that invested $135 million in Groupon in April. DST’s investment was junior to other previous investors, meaning that in a sale, DST would be last in line to recoup its investment. The new investors would be senior to earlier investors, a more usual arrangement, but DST has become well-known in the industry for its willingness to invest in Internet companies like Facebook and Groupon on liberal terms.

While VC Experts initially suggested that DST paid a slightly higher price than Groupon’s new investors might, that analysis seems to be off, since it doesn’t take into account a three-for-one stock split that took place in August. If Groupon finds investors at the new valuation, DST’s shares will have roughly tripled in value since April.

Beyond Mason’s Twitter post, Groupon did not respond to an inquiry about its financing plans. The company has already bought several imitators overseas, giving it a fast-growing international presence, and could use the money to expand to more cities in the U.S. and abroad. Its business, in which it offers subscribers a daily email with a deeply discounted offer for a local business in their city, requires a large human presence of salespeople, writers, and city planners, and that doesn’t come cheaply. The return on investment seems substantial, though: Groupon’s annual revenues are now believed to be running around $2 billion.

Rival LivingSocial recently raised $175 million from Amazon.com, in a deal first reported by VentureBeat. But Groupon has about 80 percent of the market.

Groupon’s only flaw appears to be shaky technology. Watchmouse, a website-monitoring service, reports that Groupon has experienced more downtime than any other company in the social shopping category.

This report has been updated to include information about Groupon’s three-for-one stock split.

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