Key Groupon Investors Ditch the Troubled Stock

Critics say big pre-IPO investments overvalued the company
By Mark Russell,  Newser Staff
Posted Aug 20, 2012 6:04 AM CDT
Key Groupon Investors Ditch the Troubled Stock
Silicon Valley icon Marc Andreessen in Palo Alto, Calif., on May 11, 2012. Andreessen is one of several big-name investors who have sold their shares in online giant Groupon.   (AP Photo/Paul Sakuma)

With Groupon having lost three-quarters of its IPO value, several of its key early investors, including web icon Marc Andreessen, have left the building, reports the Wall Street Journal. Andreessen's firm, Andreessen Horowitz, invested $40 million of the $950 million pumped into Groupon in the months before it went public last November, but sold all its shares (for a nearly $14 million profit) after selling restrictions were lifted June 1. Fidelity and Maverick Capital have also sold a large portion of their Groupon shares. Critics contend that having prominent investors pump big money into startups just before their IPOs leads to dangerous overvaluation. "Groupon would never have gotten this big without that late-stage money," said one investor.

But some big-name investors have also increased their stake in Groupon, including Morgan Stanley and T. Rowe Price Group. With the dropping share price of other high-profile tech companies, including Facebook and Zynga, some are recalling the dot-com bust of 2000. However, analysts point out that unlike in 2000, these tech companies are pulling in big revenues and often turning profits; they just aren't meeting expectations. Also, the Nasdaq is up 18% this year; during the dot-com bust it lost 78% of its value from March 2000 to October 2002. Groupon's stock closed at a record low of $4.75 on Friday. (More Groupon stories.)

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