Early last month, staff at the world’s largest daily deals website Groupon received an email from CEO Andrew Mason quite candidly declaring that he was “fired.” Groupon stock is trading at less than a quarter of its listing price and the company has only posted a profit for a single quarter since it began trading.

1. 62 GlobeAsia April 2013
Technology
arly last month, staff at the
world’s largest daily deals
website Groupon received
an email from CEO An-
drew Mason quite candid-
ly declaring that he was “fired.” Groupon
stock is trading at less than a quarter
of its listing price and the company has
only posted a profit for a single quarter
since it began trading.
While investors seemed by and
large happy with the ouster (Groupon
stock jumped 4% in extended trading),
the company’s future remains bleak.
The brief rally could be attributed to
the fact that many investors do not re-
ally know much about Mason’s replace-
ment. Indeed, the biggest challenge for
Groupon going forward could well be
summarized in one word (or rather
name): Lefkofsky.
Specifically Eric Lefkofsky, the
interim CEO of Groupon – he shares
the post with former AOL President,
Ted Leonsis. Lefkofsky has so far man-
aged to stay behind the scenes. While
most people know Andrew Mason as
the face of Groupon, few have heard of
Eric Lefkofsky, the shadowy Emperor
Palpatine-like figure who rules from
the sidelines.
It might come as a surprise to some
that Mason only owned 8% of the stock
in comparison to Lefkofsky’s 22% prior
to the Groupon IPO. Now that Mason is
gone, however, there seems to be a spot-
light pointed right at Lefkofsky and in-
vestors hope that the company is now in
better hands. If one were to shake their
Magic 8 ball however, signs point to no.
Lefkofsky’s past record shows some
troubling similarities with present day
5.mshcdn.com
Just who is Groupon’s
new interim CEO?

2. April 2013 GlobeAsia 63
By Jason Fernandes
Groupon. Starting his career in college
as a carpet salesman, Lefkofsky sold
mostly used carpet from trade shows to
other students. He was apparently pret-
ty successful at that and soon expanded
to five college campuses.
Lefkofsky’s next venture involved
the purchase of an apparel company in
Wisconsin that he and partner Brad-
ley Keywell (also a Groupon investor)
grew from sales of $2 million to $20
million. Unfortunately, they did this
through a massive expansion program
that resulted in the collapse of the com-
pany under its own debt.
Where Lefkofsky goes, lawsuits
tend to follow
But it gets worse. Brandon Apparel was
sued by almost everybody – its former
owner (for non-payment), the National
Football League properties, major
league baseball properties and even the
city of Columbus, Wisconsin for vari-
ous alleged infractions.
If that wasn’t enough, in 2000,
former lender Johnson Bank sued
Lefkofsky and Keywell personally, as-
serting that they had used resources
from Brandon Apparel to start their
next venture, Starbelly.com. The suit
alleged that Lefkofsky and Keywell de-
frauded creditors by creating a complex
network of trusts and other vehicles to
prevent investors from recouping their
losses. The judge awarded the bank
$11 million in a default judgment, but
dismissed the other claims on jurisdic-
tional grounds.
Starbelly.com made its money
(and I use that term loosely) providing
e-commerce for branded merchan-
dise. It somehow managed to garner
a valuation of $32 million from Chase
Capital and Flatiron partners. All this
(according to a June 2011 article in
Fortune) while posting a $2.5 million
loss on revenue of $183,000 within its
Lefkofsky and Keywell
have developed a knack
for growing a company’s
valuation despite a lack of
revenue and in some cases
significant losses.
first six months of operation.
The partners were soon able to
sell Starbelly.com to Ha-Lo Industries
for $240 million, over seven times
its previous valuation from just four
months earlier. The acquisition worked
out terribly for Ha-Lo Industries but
excellently for Lefkofsky and Keywell.
The company, which had 50 years
of experience in the industry and an
operating profit of $1 million pre-
acquisition, soon posted a $64 million
dollar operating loss almost wholly as a
result of the Starbelly.com acquisition.
Ha-Lo Industries was forced to file for
bankruptcy less than two years later.
The deal made Lefkofsky and Keywell
the largest shareholders of Ha-Lo In-
dustries, together owning a combined
$49 million in stock.
Again lawsuits followed. In an
email from this period sent to col-
leagues and unveiled in court docu-
ments later, Lefkofsky is quoted as
saying “let’s start having fun ... let’s
get funky ... let’s announce everything
... let’s be WILDLY positive in our
forecasts ... let’s take this thing to the
extreme ... if we get wacked on the ride
down – who gives a shit.”
Ha Lo later emerged from bank-
ruptcy as Halo Branded Solutions.
Clearly Lefkofsky and Keywell have
developed a knack for growing a
company’s valuation despite a lack of
revenue and in some cases significant
losses.
Lefkofsky’s subsequent venture
InnerWorkings was also touched by
controversy. Barron’s Bill Alpert wrote
a damning piece in 2007 that seems to
foreshadow Groupon’s later troubles.
Alpert called InnerWorkings a “glori-
fied broker of print jobs” and alleges
that the company went to great lengths
to hide its involvement with Lefkofsky
who “has a history of busting investors
after promising to radically transform
bricks-and-mortar industries.”
A subsequent 2008 lawsuit filed
by Sports Publishing LLC alleged that
InnerWorkings billed the company
“hundreds of times” for fraudulent
amounts during the years 2005 through
2007 and accused InnerWorkings and
Lefkofsky of “racketeering” and “ter-
rorist tactics.”
In a weird twist, the suit alleged
that Lefkofsky had personally threat-
ened to “shoot” the CEO, Dr. Joe Ban-
non, if Sports Publishing didn’t meet
his demands. While the suit was later
withdrawn, coupled with Lefkofsky’s
previous history, it does seem like quite
a bit of smoke for there to be no fire.
Get it while the going is good
Most troubling perhaps, is the fact that
Lefkofsky appears to be continuing his
pattern of cashing out at just the right
moment with Groupon. According to
the Fortune article, Lefkofsky and his
family were able to personally cash out
to the tune of $382 million just before
the IPO.
To put this in perspective, that rep-
resents more than double what Keywell
and his family were able to sell and
38 times what CEO Andrew Mason
offloaded at the time. As website AllTh-
ingsD.com pointed out in an article
published in June 2011, Groupon was
able to raise $950 million, of which
$810 million went to pay out investors
and employees, leaving the company

3. 64 GlobeAsia April 2013
Technology
little in terms of operating capital. The insider
selling was viewed by many to be a vote of no
confidence by the management of the company.
The fact is that not only was Groupon los-
ing money at the time, but it was desperately in
need of the capital raised to remain relevant vis-
a-vis its competitors. The money should’ve been
spent on growing its subscriber list, rather than
letting its founders and their cronies cash out.
The icing on the cake is that, according to an
article by Jim Edwards of Business Insider pub-
lished earlier this year, Lefkofsky has “interests
in several companies that have close relation-
ships or contracts with Groupon that, for a long
time, have represented a conflict of interest for
the company...”
The article goes on to list the conflicts point
by point painting a pretty damning picture of
the incestuous interplay between Lefkofsky’s
business interests. As matter of fact Groupon
admitted to possible conflicts of interest in a
recent 10-Q SEC filing stating “(Lefkofsky’s)
investments may be in areas that present con-
flicts with, or involve businesses related to, our
operations. There can be no assurance that our
business will not be adversely affected as Mr.
Lefkofsky devotes less time to our business in
the future.”
Groupon’s filing with the SEC indicates that
Groupon paid (Lefkofsky venture) InnerWork-
ings approximately $3.8 million in just the
last two years. Echo Global Logistics, another
Lefkofsky-founded company, was paid over
$600,000 just this year and a law firm owned
by Lefkofsky’s brother Lefkofsky & Gorosh was
paid $695,000 in 2011. The firm is expected to
continue to represent Groupon in other matters
going forward.
This coupled with Lefkofsky’s massive stock
unloading pre-IPO, seems to indicate that his
goal is to slowly extract as much as he can while
Groupon still exists, then either sell or other-
wise exit, as he did with Starbelly.com.
Groupon investors need to be very con-
cerned that the fox is now guarding the hen
house. Sure he had enormous influence before
as the largest shareholder, but now as interim
CEO he has operational power that cannot be
ignored given his previous track record.
Shortly after Andrew Mason was let go,
Lefkofsky spoke with FastCompany’s Elizabeth
Spiers in an interview where he essentially ad-
mits to sleeping on the job. Lefkofsky says “For
whatever reason in the first 12 to 15 months of
us being public we did not do a very good job of
controlling the process...It felt very often like the
process was controlling us.”
This was somewhat of an odd statement be-
cause, as Spiers points out, since he and his now
co-CEO were responsible for board oversight,
he does bear a fair bit of responsibility for what
happened. Not surprisingly, Lefkofsky lays the
blame solely at Andrew Mason’s feet, saying es-
sentially that since Mason accepted responsibil-
ity, he is to blame. Let’s hope that when a new
CEO is finally hired, there still is a company left
to run.
Subsequent to taking over Groupon, Lefkof-
sky was quoted in the Chicago Tribune (March
3 2013), saying things like Groupon is “inches
away from greatness” and “the long-term hori-
zon of the company is fantastic.” Unfortunately
in context of his history of making wildly posi-
tive statements that were disingenuous at best,
investors are not likely to take his word for it.
Some might be wondering what Lefkofsky
was doing when Andrew Mason was fired. The
answer is probably instructive of Lefkofsky’s
general view towards companies he is involved
with. As it turns out, he was on a two-month
long sabbatical in Southeast Asia. People say
that Nero fiddled while Rome burned. Groupon
might never conquer the world like Rome did,
but Lefkofsky could just be the new Nero.
Jason Fernandes is a tech commentator and the
founder of SmartKlock.
Groupon
investors need
to be very
concerned that
the fox is now
guarding the
hen house.
www.dragonflyeffect.com