Investors looking for the next Groupon
With a reported net worth in the multi-billion dollar range, Groupon has made its original investors look like geniuses. Now they are searching for their next big hit.
A few years ago Eric Lefkofsky and Brad Keywell put some seed funding behind 30-year-old Groupon founder Andrew Mason’s viral couponing concept. Today it’s one of the world’s hottest companies with annual revenues reportedly ranging from $500 million to $2 billion.
The investing duo are now trying to duplicate that success, starting their own Chicago-based venture capital firm – Lightbank – with $100 million of mostly their own money.
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“We’re focused on investing not just for the sake of investing but really finding companies that we want to work on,” said Lefkofsky, who until recently held the unofficial title of Groupon’s chief financial officer.
“We’re not constrained by outside capital,” added Keywell, who, along with Lefkofsky, declined comment on Groupon’s reported rejection of a recent buyout offer from Google in excess of $5 billion. “There is no pressure to return money to an outside investor.”
Since launching nearly a year ago, Lightbank has made nine investments, six of which have been disclosed, Keywell confirmed. All have been early-stage tech companies operating in the e-commerce and social media spaces. The firm’s holdings also include three companies the pair invested in prior to forming Lightbank, Keywell added.
The 41-year-old founders don’t disclose figures, but said the majority of Lightbank’s cash is yet to be deployed. Their portfolio companies range from Poggled, which gives users exclusive discounts at local bars, to Where I’ve Been, a social travel network that lets members chart trips and discover new destinations.
“The commonality is that they all play somewhat in the social Web space,” Keywell said.
› Q+A: Groupon investors Brad Keywell and Eric Lefkofsky
After cementing a friendship at the University of Michigan Law School that began in their childhood, the two went on to buy into or start more than 20 businesses. In 2000, Lefkofsky and Keywell sold Web property Starbelly for $240 million.
Despite their entrepreneurial acumen, they said nothing prepared them for the global impact of Groupon, which has created a domino effect.
“The scale of Groupon and the success it has achieved and the manner in which it has changed commerce… is lasting and profound, and probably even bigger than the value of the company,” said Lefkofsky, adding it has almost single-handedly put Chicago on the map as a new technology hub. “It’s invented an entire industry that has spawned more than now nearly 2,000 clones worldwide.”
Lightbank’s plans to deploy capital locally is good news to many in the Windy City, which has never seen a tech phenomenon the likes of Groupon, recently deemed the fastest-growing company in the world by Forbes. Whether its success is enough to draw serious interest away from tech hotbeds like California’s Silicon Valley remains to be seen.
“Traditionally it’s not been viewed as a good place to start a company,” said Stuart Wall, who previously worked in Chicago’s venture capital industry and is now the founder and CEO of New York-based startup Signpost, which received financial backing from Google Ventures and Spark Capital. “There are a lot of really talented people coming out of universities in the Midwest. The missing factor is the capital.”
But the track record of Lightbank’s founders has many local tech supporters betting on the city’s future. Among the joint successes of Lefkosfksy and Keywell are Echo Global Logistics, a freight logistics firm that went public in 2009, and MediaBank, which has grown into one of the leading media planning and buying platforms in the advertising industry.
“When you look at Groupon it’s a real testament to exactly that set of experiences, the way they’ve been able to scale it,” said Matt Moog, a longtime Chicago Internet entrepreneur. He notes Chicago is already home to successful Web companies such as travel site Orbitz, grocery seller Peapod and community-centered apparel retailer Threadless.
“The venture capitalists, the entrepreneurs, the technology community feels like we’ve got to grab this opportunity and continue,” Moog said.
The Lightbank founders interact constantly with their investment companies, access facilitated by offices housed inside Groupon’s vast complex in downtown Chicago.
Even at Groupon, Lefkofsky and Keywell remain as hands on today as they were back in 2007 when they convinced Mason to abandon graduate school and pursue his entrepreneurial vision. At the time he was developing The Point, a Web platform whose aim was to get users to participate or contribute to a cause or goal. The most noteworthy was Mason’s campaign to raise $10 billion to build a dome over Chicago to eliminate the effects of the city’s harsh winters.
“As time progressed, and there was no revenue in that business, we basically made a decision,” Keywell recalled. “One road would have said shut it down, it’s not working. The other road (said) there’s something very special about the tipping point model, see if you can apply it to other things.”
In hindsight it was clearly the right decision.
“They’re both really good at trying to get you to look at things that you haven’t before,” Mason said, noting that without their relentless pushing, “Groupon would not exist.”