Chicago’s startup community sticks by struggling Groupon
Not long ago, daily deals giant Groupon was the toast of Chicago, a press darling that received the blessing of Oprah Winfrey, was commended by Forbes as the “fastest growing company ever,” and even reportedly spurned a multibillion-dollar buyout offer from Google.
A Chicago Tribune headline from last December summed up its place in the ecosystem: “Groupon’s Success Adds Luster to Chicago’s Startup Community.”
Things have changed somewhat, of course, with Groupon experiencing numerous setbacks since filing for an IPO in June. Among them, the company has been forced to amend its S-1 three times to satisfy SEC concerns over its accounting practices; it lost a COO who’d joined five months prior; and an email leaked to the press led the company to cancel its IPO roadshow. Early this week, a financial analysis firm released a report suggesting that Groupon may now be on a “self-reinforcing path to insolvency.”
If Groupon suddenly looks to leave a mixed legacy in Chicago, the city’s startup community is loath to acknowledge it publicly or privately. Indeed, talk with regional entrepreneurs and investors and two things quickly become clear: they say they still believe in Groupon; they also think no matter what happens to the company, their fortunes will not be tied to it.
“Groupon put Chicago on the (startup) map,” said one longtime Chicago VC who asked not to be named. But if Groupon should stumble after all its advanced billing, “I don’t think it will blow up the community or cause venture money not to come into Chicago,” he added.
“It’s true that Groupon is closely associated with the Chicago tech scene,” said venture capitalist Steve Miller, co-founder of Origin Ventures outside of Chicago. “But as someone who has been closely involved here for the last 12 to 13 years, I can tell you there’s much more to Chicago than Groupon.”
It’s easy for Miller to make his point. He sits on the board of 7-year-old GrubHub, the Chicago-based company that allows users to order food for delivery or take out online and that last week raised $50 million in Series E funding, including from Benchmark Capital. (It has raised $84 million altogether.)
Miller said that “five or six years ago, it wouldn’t have been the case the companies could stay here.” Now, he said, “(Benchmark’s) Bill Gurley, a rock-star VC partner, flies to Chicago for (GrubHub) board meetings. It’s because our venture and entrepreneurial communities have matured over time.”
Still, that evolution, if not attributable to Groupon itself, is thanks in some part to Groupon’s earliest backers, Eric Lefkofsky and Brad Keywell. And regardless of Groupon’s prospects, few in Chicago are willing to overlook the role the powerful duo has played in helping to create the city’s current ecosystem.
While Lefkofsky and Keywell may become best remembered for enriching themselves ahead of Groupon’s IPO – of the $1.12 billion that Groupon has raised, upwards of $940 million has gone to insiders – the serial entrepreneurs have done much to encourage talented entrepreneurs in Chicago, including establishing a $100 million seed-stage fund last year, and, last week, acquiring Chicago’s storied, 450,000-square-foot Wrigley Building, where they will house their growing number of portfolio companies.
“People might not like Brad and Eric,” said the VC who asked to speak anonymously. “But they are hard-nosed entrepreneurs who got where they are today not by being shy, but by working hard.”
“Despite all the naysayers right now, Groupon is a company that most entrepreneurs would kill to have created,” added a Chicago entrepreneur, also speaking anonymously. Says this person (who hasn’t received backing from Lefkofsky or Keywell), “They didn’t just create a company; they created an entirely new e-commerce monetization strategy, one that was distinctly different from anything else out there.”
More important, Groupon has recruited people who think differently, said the entrepreneur, who believes Groupon’s most lasting impact on Chicago may be that it produces more entrepreneurs. “What’s most exciting about having Groupon in Chicago is anticipation around what one of their employees, after being steeped in the kind of thinking that happens there every day, might think of next.”