Report: LivingSocial ‘Days from Chapter 11′

LivingSocial logoEarlier today it was reported that LivingSocial secured another $110 million from existing investors. This was presented as a “vote of confidence” that would allow the company to reach profitability in the next quarter (or so). Here’s how the article read:

LivingSocial Inc. has raised $110 million from a group of existing investors that will allow the daily deal giant to “build our reserves, solidify our long-term plans and execute against our vision for the future,” CEO Tim O’Shaughnessy told employees . . . 

Calling the cash “a tremendous vote of confidence in our business from the people who know us best,” O’Shaughnessy said the investment doesn’t change the District-based company’s plans to reach profitability soon.

Someone this evening showed me a very different explanation of the round. A site/company called PrivCo had radically different take, saying that LivingSocial was just “days from bankruptcy” and that this was an emergency cash infusion via a “take it or leave it offer” on “onerous terms.”

Here’s the PrivCo analysis:

LivingSocial’s issuance of this onerous emergency debt financing effectively means that its most recent investors entirely control the equity of the company. LivingSocial essentially threw itself at the mercy of its investors – who had already sunk over $823 Million in the company before today’s $110 Million additional lifeline – to avoid a total collapse of the company that would have occurred within days.

PrivCo also made these other gruesome claims about the deal:

  • Employees’ stock options are worthless
  • Founder stock is worthless
  • Nearly a billion dollars of investor money has been lost . . .
  • Sources said LivingSocial’s Board made clear this was the final lifeline, that the company must break even by the end of the year including closing dozens of unprofitable offices and laying off thousands of employees
  • LivingSocial’s merchants owed money stand behind today’s funders in the event of a bankruptcy, as unlike today’s funders they are unsecured creditors
  • PrivCo’s sources indicate that investors are forcing the company to break even in an attempt to sell the company by year’s end

Which story do you believe?

If the PrivCo version is true it’s a remarkable fall for LivingSocial, which was Pepsi to Groupon’s Coke. It would also probably mark the end of the “daily deal era,” which lasted essentially from 2009 to 2012.

Consumers will never tire of saving money and coupons/offers/deals will always be with us. Indeed coupons/offers are an integral part of many mobile payment and mobile loyalty strategies. But the phenomenon of the push-email-50-to-90%-off-daily-deal appears to be coming to a close.

Regardless, the models and language are changing: Groupon is now a “local e-commerce” company, Nimble Commerce is an “ad network” . . . and so on. People are abandoning the “daily deals” label.

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3 Responses to “Report: LivingSocial ‘Days from Chapter 11′”

  1. Painters says at

    Well isn’t that a turn of events!

    I was under the impression that Amazon owned Living Social? Was it Amazon that presented the Onerous Terms? Or are they out and did other investors step up to the plate?

  2. Painters says at

    Also, what do they mean by trying to sell the company?

    Wouldn’t Amazon be the obvious buyer, or are they out?

    Alternatively, does anyone think that Google might actually step up to the plate and look to buy Living Social rather than Groupon? Or maybe Google might buy both and finally get their hands on a substantial local sales force.

  3. Greg Sterling says at

    Amazon made a huge investment, which the company subsequently wrote down/off. They had a significant minority stake but not a majority of the shares. Though now it’s now clear. 

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