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LivingSocial Falls to a Quarter of 2011 Value in Latest Funding

Feb. 22 (Bloomberg) -- LivingSocial Inc. was worth about $1.5 billion in a recent financing round, less than a quarter its value as recently as 14 months ago, evidence of dwindling demand for the daily coupons that make up most of its sales.

Investors put $110 million into the company and received 7.5 percent of its equity, Chief Executive Officer Tim O’Shaughnessy wrote in a memo yesterday, obtained by Bloomberg. That’s a drop from December 2011, when LivingSocial raised funds at a valuation of about $6 billion, a person said at the time.

Fading demand for online daily deals has slowed growth and forced LivingSocial to raise funding in a so-called down round, whereby a company gets a lower valuation than in previous fundraisings. As is common with such rounds, LivingSocial included terms designed to ensure the most recent investors make their money back in case of a sale.

“Like most standard preferred-stock deals, this one comes with a liquidation preference where the latest money in will be the first to be paid out in a liquidity event, like an acquisition,” Charley Moore, executive chairman and founder of San Francisco-based online legal-services firm Rocket Lawyer Inc., wrote in an e-mail.

Investors participating in the recent funding include existing LivingSocial backers Amazon.com Inc. and Revolution Partners LLC, according to a person with knowledge of the matter who asked not to be identified because the funding was not announced publicly.

The company also agreed to pay some backers an annual dividend of about 3 percent of their investment, O’Shaughnessy wrote.

Like Groupon

LivingSocial’s decline mirrors the plight of Groupon Inc., the leading daily-deal site, which has dropped 71 percent since its November 2011 initial public offering. The Chicago-based coupon provider has a market capitalization of $3.8 billion.

In November, LivingSocial cut about 400 of its 4,500 employees after a review of operations. The company at the time also approved 100 new hires and increased spending in certain areas to target growth.

Amazon last year reported a charge of $169 million related to its stake in LivingSocial. The online retailer had invested $175 million in the coupon service in 2010.

To contact the reporter on this story: Douglas MacMillan in San Francisco at dmacmillan3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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