Groupon IPO Shows Chicago's More Than Obama

Jeff  Carter
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Posted: Oct 23, 2011 5:07 AM

Groupon announced that it was going forward with its IPO. The raw numbers that people care about are $10 billion in valuation, and $16-18 bucks per share.

Last spring, there were many out there that speculated Groupon might be worth $30 billion. In some circles, it became a parlor game to guess what the company might come out at and what their eventual valuation would be.

I have seen Groupon from almost the beginning. I was at a University of Chicago CEO Roundtable where Eric Lekofsky spoke. He mentioned they had just started a new company, and gave us the history of “The Point”, the failed predecessor to Groupon. Then he talked about Groupon and how many times offerings didn’t even tip.

At the time, I had just co-founded Hyde Park Angels, and after the presentation asked Eric if he would be interested in co-investors. He said, “No.”. That was that. Only he and his partner were funding it. They assumed a lot of risk.

It is reported that Google ($GOOG) offered Groupon $6 billion to buy them. They turned it down. Many wise people scratched their heads and couldn’t figure it out. They thought it was bad business not to sell for that kind of money, especially when the company was founded a scant 4 years ago.

As they have progressed in the IPO process, I think the analysts have done them some huge favors. They have had to restate their accounting, and become more transparent. They have a better handle on the actual cost it takes to acquire customers. Taking the steps toward an IPO gave them discipline.

If you look at the numbers, pursuing an IPO was a great decision. Turning down a sure $6 billion is a great risk. But, they saw the probabilities line up in their favor. They will make an extra $4 billion by turning Google down. Only government accountants wouldn’t blink at seeing an extra four billion in valuation. It’s a lot of Benjamin’s.

For the Chicagoland start up community any way you score it, Groupon is a smashing success. We will raise a glass of champagne and toast them. There is a lot of stuff going on here, and it’s not like the start up community on the coasts, although there are always going to be similarities.

You could go through a litany of great companies being built here, and great ideas that came from here. I won’t bore you with it. Things are really percolating here despite the poor politicians we have running the place. Midwestern values dictate that you ignore them and pull yourself up by your bootstraps and companies all over Chicago are doing just that. Angels that see the stock market as a risky place to do business are reinvesting millions in Chicago start ups.

Chicago is not competing with the coasts. We are different. Midwesterners are different. The weather is different. The core business strengths of the area are different. San Francisco has Apple($AAPL), we have Kraft($KFT). Boston has medical start ups, we have Morningstar ($MORN). Every area of the country has similar strengths and weaknesses. It’s not about competition. It is about making the pie bigger.

Innovation and start up companies are not fixed in time. They are more like outer space and the big bang. The more there are the more that are started. It can be endless if we create the right environment for it.

Last week, I spent a bit of time in New Orleans. They are trying to get a start up community going there. The Idea Village is one part of that. I spoke to a person down there and we talked about the environment and I asked her what the core strengths of New Orleans were. Obviously tourism and food is one, but that’s not unique to New Orleans. One thing we talked about was water. New Orleans knows how to handle water. Water offers a lot of potential for shipping, logistics, movement of, treatment of and many more ideas simply with that one concept. NOLA has an abundance of it.

When you think about Andy Kessler‘s advice on how to capitalize and start a company, water fits perfectly. Take what is basically free and abundant and turn it into a business. The problem with doing a water businesses in Silicon Valley may be they don’t have any water there to work with! Not a problem in southern Louisiana!

Groupon is the same sort of story. Think about all the strong retail consumer companies that started in Chicago. Sears, Montgomery Wards, JC Penney, Marshall Field, Carson’s. There is a lot of free, consumer products DNA floating around here that Groupon capitalized on. It’s a fantastic success story.

It’s fun to make jokes. You can buy $36 Groupon stock for $18! But I think they deserve a lot of credit. They started a retail focused company in front of the worst financial crisis our generation has seen, and were wildly successful. That’s pretty awesome.