Chicago based Groupon, which was formerly known as ThePoint, has raised a hefty Series B financing – $30 million – from new investor Accel Partners and existing investor New Enterprise Associates. Accel’s Kevin Efrusy joins Groupon’s board of directors.
The company is going gangbusters. They offer users deep discounts on local deals – spas, sky diving lessons, hotels, restaurants, golf, whtaever. Discounts range from 40%-90% of the normal price. If enough people buy into the offer, everyone gets the deal. If there aren’t enough people, no one gets the deal. Groupon collects payment and passes it on, minus their fee, to the business.
Example – 1,600 people in one day bought skydiving lessons in Chicago, says the company, getting a 44% discount on the $229 price. And the company making the offer normally sells just 6,000 lessons per year. They sacrificed some profit, but gos lots of new customers.
What makes the service so compelling is that people have an incentive to get their friends involved to make sure the minimum is hit. And Groupon makes it easy to spread the word about offers via Facebook and Twitter. Their user acquisition costs? zero.
Groupon generally takes 30% – 50% of the total price paid for the service, and they are on track, they say, to do $100 million in gross merchandise sales in 2010. They reached profitability in June 2009, just six months after launching the service.
Chicago launched first but the site now covers 26 cities and is adding a new one every week. They have 126 employees, more than half of which are sales staff finding new deals for users. The company has now raised about $35 million in aggregate, including an early angel round.