Groupon Seeks Venture Funding to Radically Increase Its Value

Furthering evidence that Groupon plans to be the “next big thing” in consumer Web services, the company is reportedly seeking venture funding that may value the company at up to $3 billion.

Groupon is a “deal of the day” website that serves more than 150 markets in North America and 100 markets in Europe, Asia and South America. As of today, it has more than 20 million members. The company was launched two years ago, in November 2008, initially serving the Chicago market only. Groupon also owns several similar international operations, including the Europe-based MyCityDeal, the Japanese service Qpod.jp and the Russian Darberry.ru.

Groupon offers one special “deal” (or “Groupon”) each day. It's essentially an assurance contract: if a certain number of people sign up for the offer, then the deal becomes valid to everyone who signed up. If the predetermined minimum is not met, no one gets the deal that day. It's a clever strategy: people who are keen on an offer will pass it along to friends as a way of helping increase the critical mass of people signed up for the Groupon. In essence, Groupon's customers do its most effective marketing for it. The model also works well for retailers and service providers, who are guaranteed a large volume discount sale. Groupon, which makes its revenue by taking a cut of the sales from retailers, is owned by ThePoint, Inc., whose technology the service is based on.

Earlier this year, Groupon raised $135 million in funding from Digital Sky Technologies (DST), a Moscow, Russia-based firm that invests in new Web technologies. Aside from DST's investment, Groupon has also raised a total of $170 million from other companies, include Facebook investor Accel Partners and New Enterprise Associates. There were rumors yesterday that DST was considering investing in Twitter.

There were rumors last month that Yahoo was looking to purchase Groupon for $3 billion, but the acquisition (if it was considered) never came to fruition.