Was the "UPDATE" to the article published when you left your comment?
UPDATE: Just got off the phone with Hamadeh
[PrivCo CEO], who is standing by his original report.
He says O'Shaughnessy is misleading his own employees,
and that classifying the round as "equity" is a
technicality given all of the debt-like provisions
PrivCo continues to believe were attached. He also says
that PrivCo spoke with a LivingSocial spokesman prior
to publishing, and sent him a draft of the report with
a request for any needed corrections. When nothing came
back four hours later, PrivCo published.
I'm not sure if he's just trying to salvage a poor decision to go forward with this article, or if there's actually something here, though.
The update makes PrivCo look even worse, by implying that it was LivingSocial's responsibility to ensure that their bogus report was accurate. Look, I can play that game right now: I'll write a 3 page report on Dropbox's impending bankruptcy, send it to them, and when they don't respond report it as fact.
"He also says that PrivCo spoke with a LivingSocial spokesman prior to publishing, and sent him a draft of the report with a request for any needed corrections. When nothing came back four hours later, PrivCo published."
With respect to the "4 hours later" I would like to know what the standard is in the news business before "going to press" with a story.
I'm not entirely certain that a news organization would wait more than 4 hours if they feel they are publishing information or trying to scoop someone. Each news organization is different of course and has different standards. I don't think this is as unusual as it sounds (I could be wrong of course).
I will ask a writer(customer we have) at the NY Times what the standard is for this (I'll be lucky if they reply to me within 4 hours of course).
The NYT would be confident in the sourcing of its information if it was rushing something to press. PrivCo's "source" (generously stipulating it exists) didn't even know who LS's investors were.
"When a news organization has what they
think is a "scoop" and reaches out to confirm
info with a company what is the normal time to
wait for a reply before running with the story?
I understand each organization has different
standards and each situation is different.
What are the guidelines or standards that
you have seen after a PR depart at a company
has been contacted for comment?"
Here was the answer from someone at the NYT (for at least 10 years) that has done front cover pieces and covered startups (among other things):
"It really depends on the topic, the competition and who's being asked to comment. If I called someone like you (business owner) and you didn't at least acknowledge my inquiry within a day -- perhaps asking for more time -- and it was a big scoop, I might not wait much longer. But if I had big news about a government agency or large multinational corporation with many layers, then some topics would merit more time for a response. There are a lot of variables though ... if the CEO of a large corporation got busted for drunk driving and killing someone, that's more time-sensitive than asking for comment about a long-term investigation into fraudulent practices at the company. And as you said, different media outlets have different standards."
I wonder if it was on the record or off the record. If it is a leak then I wonder if LS would check all the emails of top employees to find the leaker (if they were dumb enough to send from company email).
PrivCo saying they "...sent him a draft of the report with
a request for any needed corrections. When nothing came back four hours later.." they assumed everything is true is a weak though.
I guess I will send LS an email saying I am the new CEO, please email back if this needs to be corrected...
...I will let you guys know if they don't respond, in which case, D.C. here I come!
PrivCo had a full 45 minute phone call with LivingSocial's OFFICIAL SPOKESMAN to fact check data and also get new facts he offered up about the financing round. That was at 4:30pm Thursday. At 6pm Thursday he received the draft report (as he was eagerly expecting) so he could reply suggesting anything factually wrong, and if he wish provide an official statement which PrivCo would include verbatim. NONE were returned to PrivCo. We emailed again at 7pm, no response. Shortly after 10pm ET when our staff finally couldn't stay any later, we published. (FYI most news organizations refuse and NEVER send actual drafts to the subject companies to "mark up". So PrivCo went above and beyond the call of duty.
"We'll send you a draft report at 6pm Eastern. If we don't hear from you by 10pm Eastern, we publish."
I'm sure your out-of-hours deadlines were totally non-negotiable, and that holding off on the release til the next morning were absolutely essential, right?
What I do not understand is: what does an 'investor' expects 'injecting' 110 million dollars on a bankrupt business?
There is nothing livingsocial can do to revert its current trajectory. It's not about the company, but the very core of its business model does not work, not one but dozen of similar companies failed early, are livingsocial and groupon trying to run some sort of ponzi scheme on desperate investors and employees?
I don't care. I don't follow LivingSocial or the "daily deals" space, but I do follow startup news, and it's good to know that "PrivCo" is not to be trusted.
It's reasonably obvious that the investor does not agree with your assertion that "the very core of its business model does not work". You can't state something like that as inarguable fact.
I don't doubt for a second that LivingSocial is experimenting with it's models, innovating and trying new stuff. It might not work out, but the investor clearly has enough confidence that it will to invest more cash.
That's not necessarily true. They might be pushing for a liquidation for a value higher than their investment, netting a gain at everyone else's expense.
It's an existing investor solidifying a deal. Kind of like if you bought a stock at $40, and now it's down to $20. You look at the company and think "OK, maybe our initial investment was at a high valuation, but I think think there is a good chance we can at least get our initial money back if we keep you afloat for a while", so you buy more stock at $20, making your overall cost basis lower. Without that investment you are guaranteed to lose your money, but this way you are doubling down on your original bet, and giving the company some more runway to potentially at least break even on the exit.
> What I do not understand is: what does an 'investor' expects 'injecting' 110 million dollars on a bankrupt business?
According to the PrivCo article, they got first rights on liquidation. So they'd be either getting a huge part of a miracle turnaround, or most of their money back when the company was sold off in bankruptcy.
Of course that article appears to be completely wrong, so I guess it doesn't actually matter. But there's your motivation for investing in a dying business.
I disagree. Daily deals can work, but only at the right scale, with the right focus on the right types of markets
What groupon, livingsocial, et al assumed was that this was an endless market and would work for every type of business. This is clearly not the case. Whether these particular companies can get to the right size and find the right market remains to be seen - but I don't believe this is a "ponzi scheme" at all.
Most likely, a quick liquidation for something a little more than 110M. Given that they appear to be first in line, it could be a nice return, even if the totality of the investment is a dog.
If LS customers dropped off like flies after this report, there are multiple tort claims besides libel that could come into play. Interference is apparently one of them.
No it wasn't. They drily pointed out material falsehoods in a report. The onus is not on them to publish a counter-report that tells the opposite story. The PrivCo report is now a dead letter. It doesn't warrant a detailed response. If PrivCo is stopped-clock-twice-a-day right, well, they just fucked us all by poisoning the well.
Yeah, they just admitted that they're still not profitable, but apparently this extra $110 million will somehow do what the previous $818 million did not do.
Just because privco is full of shit, doesn't mean livingsocial isn't in trouble.
The sad truth is that this down round will hurt the employees more than they know, or are being told. Down rounds aren't made under the same terms as up rounds where the company has the advantage. When the investor has the advantage the terms will weigh heavily in favor of the investor protecting their cash, so what looks like equity today may not be in the future.
"That same source insists LivingSocial was not days or weeks away from a bankruptcy filing, adding that it had around $28 million in cash at its February low point and was on plan to steadily increase that number even without the new financing. Had that figure not increased, and had no new investment been forthcoming, it still could have survived for several more months."
Regardless of Privco, not exactly encouraging for employees and prospective merchants. I also wonder how much of the $110 million will actually be used for growing the business versus covering current liabilities, such as those due to existing merchants.
Wait, they were down to JUST $28M IN CASH in February right before taking yesterday's financing? If my math is right, looking at their 2012 financials on PrivCo:
Their operating expenses are about $1.4 Billion/year (Revenue + Operating loss = about $1.4 Billion they spend a year). That's $120 Million a month. $4 million a day. THEY WERE DOWN TO JUST 7 DAYS OF CASH! How is that NOT the very definition of a "distressed financing" situation? Correct the record Primack and admit when you're wrong - there's no shame in that - that you were a bit hasty at first, but yes they were down to a dangerously low level of cash and regardless of the financing terms or structured as technically debt or technically equity, that yes this was a distressed financing situation.