In Race With Groupon, LivingSocial Raises $400 Million
Last summer, Tim O'Shaughnessy drafted a fictional article, entitled “How LivingSocial Won the Local Commerce Space.” — In 1,500 words, the chief executive of LivingSocial spun a tale about how his site had fiercely battled its rival Groupon and emerged the victor.
Context & Ripple Effects
LivingSocial had been building toward a larger financing round after its 2010 $14 million raise, while January coverage described it as closing the gap with Groupon. The company also authorized up to $565 million in Series E funding on April 4, signaling that the $400 million raise was part of a larger capital push.
The funding matters because the local-commerce contest was becoming a balance-sheet competition as well as a race for consumer and merchant demand.
First-order effects
- LivingSocial gains $400 million in confirmed financing, giving Tim O'Shaughnessy's company greater capacity to compete directly with Groupon in daily deals.
- The authorized Series E amount leaves LivingSocial room to complete a larger financing than the confirmed $400 million.
Second-order effects
- Groupon faces a better-capitalized rival at a moment when analyst-published estimates had put its U.S. revenue down 30 percent in February and another 32 percent in March.
- The two companies' competition for local-commerce scale is likely to intensify pressure on each to sustain spending needed to acquire consumers and merchant offers.
Third-order effects
- Successive large rounds for LivingSocial point to daily deals evolving from a lightly funded social-commerce experiment into a capital-intensive contest between scaled platforms.
- If financing remains a key competitive tool, local-commerce leadership will increasingly depend on access to growth capital as well as the ability to turn deal volume into durable revenue.
The trend: Daily-deals competition is shifting toward a scale-and-financing race, with LivingSocial using fresh capital to challenge Groupon's position in local commerce.