Why are Groupon's early investors selling?

At least 4 early buyers have sold off their shares. Are they heading for the hills or just cashing out?

By Minyanville.com Aug 21, 2012 10:20AM

Cashing out or cutting their losses? Either way, it appears that early investors of Groupon (GRPN) have left the daily deals company as its post-IPO share price continues to plummet.


At least four early investors in Groupon who held stock in the company before it went public have sold off all or a huge portion of their holdings in the past few months. They include Andreessen Horowitz, Maverick Capital, Fidelity Investments and the Swedish investment firm Kinnevik.


Andreessen Horowitz sold its 5.1 million shares in June, which is when Groupon shares were already at a mere 50% of their IPO price. But the firm, co-founded by high-profile Silicon Valley investor Marc Andressen, still made a profit of close to $14 million from its initial $40 million investment.


Kinnevik also sold its 8.38 million shares of Groupon in June, with its investor relations director Torun Litzén explaining to The Wall Street Journal that the firm did so because it does not have a practice of holding minority stakes.


Among the big names that continue to hold on to Groupon shares purchased before its IPO are Kleiner Perkins, Technology Crossover Ventures, T. Rowe Price and Morgan Stanley Investment Management (MS).


Kleiner Perkins, T. Rowe Price and Morgan Stanley Investment Management are, of course, also big early investors in Facebook (FB), which also has seen its stock price take a beating since its IPO in May.


Some analysts have interpreted the selling by Andreessen and others as a sign that these investors do not see a bright future for Groupon. The Journal reports:

Groupon's plunging stock price, and the swooning shares of Facebook and Zynga (ZNGA), have rekindled memories of the dot-com bust in 2000. Unlike many dot-com era start-ups, the current companies have healthy revenue and in some cases are turning a profit -- but their results aren't matching early expectations.


However, others, such as Eric Savitz of Forbes, note that it is routine for early investors to sell off or reduce their stakes and it does not necessarily imply a pessimistic view of a company. He writes:

Now, I'm no Groupon fan, but this story in some ways smacks of piling on. The truth is, most pre-IPO investors eventually move on from their venture capital investments. I think it is safe to say that most of Google's venture investors have long since moved on, as well. Venture investors aren't generally of the buy-and-hold persuasion; eventually they sell, or at least distribute shares of their investments to their limited partners.


Whether or not Groupon's collapse symbolizes the bursting of the Web 2.0 bubble, the spotlight will now undoubtedly shift to other Internet stocks like Pandora (P), Yelp (YELP), and LinkedIn (LNKD) as investors scrutinize whether or not insiders are selling when those shares are on the way up or down.

More from Minyanville

Aug 21, 2012 10:47AM
Social networking bubble looks to be getting a little tired. Maybe FBook should buy them?
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