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(Bloomberg) — Eric Lefkofsky prodded Andrew Mason in 2008 into giving up work on a website called The Point to focus on a successor project—an e-commerce company called Groupon Inc.
Lefkofsky had invested $1 million in The Point, a site that helps aspiring activists raise funds and build petition lists, and he fretted that his investment wasn’t panning out, people familiar with the matter said. That’s when Mason began work on Groupon.
Three years on, with Groupon valued at $16.7 billion after an initial public offering, Lefkofsky as executive chairman still calls many shots alongside Mason, who represents the company’s public face. Lefkofsky’s outspoken manner has drawn regulatory scrutiny, and his mixed record at other startups may leave some investors reluctant to buy shares of Groupon as it faces rising competition from Amazon.com Inc. and Google Inc., said Kris Tuttle, chief executive officer of Research 2.0.
“He’s a guy that makes a good entrepreneur, a startup guy,” said Tuttle, whose Boston-based firm researches technology investments. “To get to your first $20 million, you can have all the color you want, and he’s got that. But now, you’re talking about a public company that’s going to take direct competition from Amazon and Google.”
With Groupon’s stock rising 31 percent on the Nov. 4 debut, Lefkofsky, 42, must demonstrate that he can provide the oversight the company needs to fend off bigger rivals while chasing profitability. He would follow in the tradition of Google Chairman and former CEO Eric Schmidt, who helped guide founders Larry Page and Sergey Brin through the search engine’s 2004 IPO.
Groupon owed almost twice as much to merchants at the end of September as it held in cash. Marketing costs rose 37 percent in the latest quarter, four times as quickly as its cash pile. And rivals’ discounts are putting pressure on Groupon’s margins, according to researcher PrivCo.
“They have to prove that they’re a real company, that they can continue growing,” Jeff Clavier, founder of SoftTech VC in Palo Alto, California, and a Groupon shareholder, said in an interview on Bloomberg Television. “We’ll see whether the management team can grow into a public company management team.”
Lefkofsky, the largest shareholder with a 17 percent stake, keeps an office on the seventh floor of Groupon headquarters in Chicago’s River North neighborhood, one level above where CEO Mason sits. While he oversees Lightbank LLC, a technology incubator that has invested in almost 20 companies, Groupon occupies a majority of his time, according to people close to the company.
Lefkofsky is frequently seen drinking coffee in the hallways and meeting rooms at Groupon. He attends the weekly “National Deals” meeting, where the company plans widespread discounts designed to raise its profile.
The gatherings act as a stage for what Mason, 31, has referred to internally as a “culture of debate,” where most proposals are met with objections from Lefkofsky or someone on the executive team, say people close to the company. In one meeting, Chief Financial Officer Jason Child called Mason and Lefkofsky a “married couple” because of their tendency to bicker, according to a person familiar with the matter.
While no business unit reports directly to Lefkofsky, the chairman moves between several functions in the company, including legal affairs, mergers and acquisitions, partnerships and fundraising, according to a person familiar with the matter.
Lefkofsky’s hands-on role alongside Mason—a college music major who dropped out of a master’s program in public policy to start websites—has lessened the need for a chief operating officer and contributed to the departure of two executives in that role in six months, a person with knowledge of the matter said.
