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44 I VCJ | June 2011
I/VS ANALYSIS
The Groupon Effect Sweeps Britain
A growing band of social
buying sites emerge in the
U.K., and they're attracting
the eyes of investors
Jennifer Hill
Contributor
A mere 18 months or so ago, few people
in Britain would have heard of the concept of
social buying.
Today, it is big business, as startups scramble to emulate the success of Groupon and
other group buying sites from across the
Atlantic Ocean. And a growing band of fledgling companies in the United Kingdom are
vying for a slice of an ecommerce pie made
more profitable by the rise of social media.
Previously, online shoppers had one predominant means to spread the word about a
bargain: emailing family, friends and colleagues. Today, they can not only email each
other, but can also use social media platforms, like Twitter and Facebook, to publicize deals on products and services to their
social networks—who, in turn, can inform
their networks—all at no cost to the businesses.
It has opened up a new universe to etailers, according to Tom Valentine, managing
director of Secret Escapes, a members-only
social shopping luxury travel website that
started trading in January and has just
recently attracted venture funding.
"The first round of big ecommerce companies used the brute force of online technology to be successes. Amazon and eBay put
enormous supply and incredible numbers of
customers together and helped themselves
and the consumer by making markets more
efficient," Valentine says. "They were great
businesses, but they didn't really do anything
new to shopping; they just made it cheaper
and easier."
Valentine says that what excites him
about social shopping today is that it allows
businesses to do something that would have
been impossible 10 years ago.
"Social shopping cleverly segments out a
certain mode of shopper, the experiential
bargain hunter, and serves them in a way
that you can only do effectively online," he
says.
Groupon Cloning
And it's easy to see why entrepreneurs
and VCs want to get in on the act. The group
buying market is estimated to be worth tens
of billions of dollars a year, with Groupon
being the runaway leader.
Launched in Chicago, 111., in November
2008, Groupon uses collective buying power
to offer knock-down prices, providing what it
says is a win-win for businesses and consumers.
The way the model works is when local
businesses—such as restaurants, spas, beauty
salons, holiday operators, tickets vendors and
the like—agree to offer discount goods and
services by up to 70% (or a range of 50% to
90% in the U.S.) when a group of buyers come
together enticed by the bargain. Once a certain number of people have agreed to the
reduced price, the deal goes ahead, and the
businesses share a portion of the sales with
Groupon.
Consumers are encouraged to publicize
offers through their social media networks
and can earn credits by recommending
Groupon on Facebook and Twitter—£6
($9.80) per recommendation that turns into a
sale. Today, Groupon offers more than 900
daily deals globally in 44 countries and
around 500 markets.
A lot of people are trying to do
this, to be the next successful
Groupon. There are no barriers
to entry, so you can set up
pretty quickly. There's a big
barrier to scale, though.
Philip Wilkinson
Co-founder
Keynoir
www.vcjnews.com
46 I VCJ I June 2011
iWS ANALYSIS
In Britain, similar group buying sites date
back to November 2009, when a group of
European entrepreneurs launched CityDeal,
the world's largest Groupon clone.
Berlin-based CityDeal was launched with
more than $12 million in funding from
eVenture
Capital
Partners
GmbH,
Holtzbrinck Digital GmbH and Rocket
Internet GmbH in 2010, according to
Thomson Reuters (publisher of VQ). The site
ran its inaugural deal in Berlin in January
2010 and expanded to open offices in the
United Kingdom, France, Spain, Italy and
other European countries.
A year ago, Groupon acquired it and
rebranded it. Today, Groupon U.K. offers daily
deals in 27 cities and has more than eight
million subscribers. The company has traction: more than 95% of customers have used
the site more than once.
"Groupon is changing the way that consumers support local commerce in cities all
over the U.K.," says Chris Muhr, managing
director of Groupon U.K. and Ireland. "We're more than the original deal, buying wine or
helping local businesses harness the power having a spa treatment during a hotel stay,
for example, to the benefit of the merchant.
of the Web to generate new business."
The merchant pays a commission on the initial transaction to Keynoir.
Hot on the Heels
The initial funding from investors was
And others are paying notice.
Similar sites have sprung up, among designed to take the company to breakthem is exclusive social buying club even, a feat achieved in February, according
Keynoir.com, which went live in March to Wilkinson. The company is now poised
2010. Keynoir has raised about $2.2 million to launch Keynoir Escapes, which will focus
in funding from Index Ventures and on city breaks, before expanding across
PROfounders Capital. Serial entrepreneurs Europe in 2012, either organically or by a
Paul Birch, co-founder of BirthdayAlarm, second funding round.
For Wilkinson, 34, a serial entrepreneur
and Andrej Henkler, a former Bertelsmann
and angel investor (he founded Shopgenie,
executive, have also invested.
"We were all trying to get up and running a British online price comparison site), busibefore Groupon came over from the U.S.," nesses in the space fall into two distinct
says Philip Wilkinson, Keynoir co-founder and camps: those that focus on discounts, such
managing director. "It's not a new concept. as Groupon andLivingSocial, and those that
It's been around for six or seven years, but are experience-led, like Keynoir and Gilt
the time is now right. A lot more people trust Group.
"I wouldn't refer to it as the 'Groupon
the Internet and people are far better coneffect.' it's nothing new, and it's unfair to
nected through their social networks."
The London-based members-only club
capitalizes on the surge in social networking
to empower people to group together via
their networks and act as bulk-purchasers to
secure discounts on high-end lifestyle experiences. Keynoir targets professionals, aged 35
to 55, who earn an average of £55,000
($90,000) a year with a select band of travel,
food, retail and entertainment offerings,
such as dining at Michelin-starred restaurants and weekend stays at five-star hotels Per Larsen
Co-founder
and with typical discounts of 55 percent.
About one-third of users tend to spend Huddlebuy
lump every site together that is trying to
innovate in the social buying space," he
says. "You have to make the distinction
between two very different camps."
Niche Players
Still, amid the burgeoning sector, niche
players are starting to emerge and attract
investors.
Secret Escapes, for example, focuses
exclusively on the luxury travel market,
while Huddlebuy.co.uk is a group buying
site specifically for small businesses.
PerLarsen, ChieuCao and Saurav Chopra
co-founded Huddlebuy in late 2010. The trio
left their senior positions at established tech
companies to launch the startup when they
spotted a gap in the market: the business
market. Their site launched in January
2011, and attracted £350,000 ($570,000) in
funding in March.
The company aims to become "the
Groupon of the B2B space."
Every day there's a new Groupon clone
emerging in the consumer space, but we're
yet to see anyone else launch in Europe in the
business space.
June 20111 VCJJ47
EWS ANALYSIS
Backed by investors, including Alex
Chesterman, co-founder of LOVEFiLM and
Zoopla, and angel investor Sherry Coutu,
Huddlebuy applies group buying to business
services and goods—everything from photocopiers and shredders to accounting software and serviced office packages—to help
sole traders and small business get the same
price benefits enjoyed by big businesses.
Each deal requires a certain number of
users to sign up before it becomes active,
but unlike Groupon, buyers can also
"request a deal" to register interest in an
offer that has expired or one they would
like to see on the site.
The site runs 10 to 15 deals at a time, and
the tipping point averages three to five buyers per deal. Like its counterparts, it leverages Facebook and Twitter to help customers spread the word.
"Every day there's a new Groupon clone
emerging in the consumer space, but we're
yet to see anyone else launch in Europe in
the business space," Larsen says. "In the
U.S., 10 sites similar to ours have launched
in the past six months, but so far it's been
very quiet in Europe."
Meanwhile, Secret Escapes closed its first
funding round in May, having attracted a
consortium of high calibre tech investors,
including Octopus Investments (backer of
Graze.com, LOVEFiLM and Zoopla), Atlas
Venture (backer of Daily Motion and Zoopla)
and angel investors, including William
Reeve, co-founder of LOVEFiLM and chair-
man ofTrueKnowledge.com.
Reeve, a non-executive director of Secret
Escapes, believes the site can crack the code
for luxury travel flash sales in the United
Kingdom and to emulate the success of
Voyage Prive in France and Gilt Group in
the United States.
"I'm always looking for successful models from overseas that have the potential to
do well in the U.K.," he says. "The luxury
travel flash sales model is doing really well
in France and the U.S. and I'm glad to have
found such a strong team now before the
U.K. market has really developed."
Secret Escapes gives up to 70% off handpicked luxury and boutique hotels, and
works because "neither consumers nor travel companies want to see a beautifullydesigned hotel on the same page as teeth
whitening ads," Valentine says.
"It's a pretty interesting niche," Valentine
tells VQ. "We love building the community,
and find it very exciting to see a distinct
group forming around the love of hotels."
Alliott Cole, a principal in the seed and
early stage team at Octopus Investments,
believes that niche social buying sites still
retain the potential to become "very significant" businesses.
"Consumer expectations for ecommerce
are developing quickly," he says. "While
shopping sites like Amazon, Diapers.com
and Zappos have become household names,
it's clear that the desire to discuss, enjoy
and share the buying process online is
becoming more and more prevalent."
Cole says that, in part, group buying has
been enabled by Facebook and Twitter and
the ease with which consumers can update
or inform their networks online.
"But going beyond this, we will see the
emergence of networks based not on friendship, but shared taste," Cole says.
Barriers to Success
However, not all of those who attempt to
follow in Groupon's footsteps will be met
with success. When Keynoir launched in
the United Kingdom, it was among a dozen
daily-deals sites looking to take Britain by
storm.
Some—such as scrumbuy.com and
dealbunch.com—have floundered, according to Wilkinson of Keynoir.
"A lot of people are trying to do this, to
be the next successful Groupon," he says.
"There are no barriers to entry, so you can
set up pretty quickly. There's a big barrier to
scale, though."
An element of good fortune is also
required, especially when breaking new
ground, according to Larsen of Huddlebuy.
"We have lots of online experience, good
relationships with suppliers and very active
investors, but we'll need some luck, as
well," Larsen says. "We're not a simple
Groupon or Living Social clone. Nobody's
done this in Britain before, and the business
space is not nearly as straight-forward as the
consumer space."
German VCs Feted Abroad,
Ignored at Home
As economic conditions
improve, German VCs and
startups are gaining more
attention, especially from
outside the country
David Nicholson
Contributor
Germany has never looked so good.
The national German economy has begun
to motor, after a decade of stagnation, jump-
ing 3.6% in 2010. Unemployment has fallen to
6.9%, down from 8.6% in 2007 and exports are
flooding out from the country's factories at
an 18% jump over 2010.
Also, a recent survey of venture capital
yields showed that for Germany, the average
gross return between 1998 and 2010 was
11.4%, compared to 7.7% in the United States.
In addition, Germany managed to avoid the
worst effects of the credit crunch since many
of its financial institutions stayed away from
the toxic loans that crippled European and
Western banks.
"The current situation for the German VC
market is outstandingly good," says Hendrik
Brandis, chairman of the venture group of
the European Private Equity & Venture
Capital Association (EVCA) and co-founder
and managing partner of Earlybird Venture
Capital. "I've never known it to be so good in
14 years."
Meanwhile, there has been a surge of
entrepreneurialism in the country, as the
brightest and best graduates apply not for
traineeships at such name-brand corporations as Siemens or Daimler, but to join
thrusting seed stage Internet, cleantech and
med tech startups.