If Google buys Groupon for more than $6 billion as reported, early employees of the online coupon service can be excused if they party like it's 1999.
Such an acquisition would make many Groupon folks rich, at least on paper, after a year or two at the Chicago company, founded in November 2008.
Provided they received compensation packages typical of most startups backed by venture capital investors, the earliest Groupon employees will likely see a payout worth tens of millions of dollars.
"If you do the math, it's a massive amount," said Peter Clarke, an associate at Heidrick & Struggles in Menlo Park, Calif. "It harkens back to the dotcom era."
Assuming founder and chief executive Andrew Mason, 30, retained a typical level of equity as the company grew, venture capitalists and startup recruiters said he may own as much as 10% of Groupon. That would give him a payout of at least $530 million. Google is said to be paying $5.3 billion for the company plus $700 million in potential management performance bonuses.
Mason, who earned an undergraduate degree in music and later dropped out of graduate school, developed Groupon out of a project he started that was designed to help organizations raise money over the Internet.
Other top executives include vice president of business development Sean Smyth, who joined Groupon in Sept., 2009, and vice president of product development Suneel Gupta, who joined in Jan., 2010. Gupta is the brother of CNN medical correspondent Dr. Sanjay Gupta.
Top executives who are among the first 20 or 30 employees hired at a company often receive 1% to 3% of equity, depending on their background and whether they join before or after the company brings in venture capital investors. Those employee equity stakes are diluted with each round of fundraising.
Groupon has raised four rounds of financing totaling $170 million. Its last round of $135 million in April was led by the Russian investment firm Digital Sky Technologies and also included Battery Ventures. The round valued the company at a reported $1.35 billion.
"I can see how some senior Groupon VPs are still holding a percent, post-dilution," Clarke said.
Historically, each round of financing for a fast-growing company leads to a valuation that is two or three times higher than the previous round, said Kevin Hartz, co-founder and CEO of the online event-planning service Eventbrite. That can make smaller equity stakes as valuable, or more so, after a funding round.
When venture capitalists compete to fund fast-growing startups, as they did with Groupon, the valuation multiple can be even higher.
"My guess is that the dilution of Groupon's last round was minimal," said Hartz, who is also an angel investor. "I don't think anyone there is holding an option grant that you would call 'small.'"
Groupon has 3,000 employees worldwide, with 1,000 in Chicago, spokeswoman Julie Mossler said. That's up from 2,000 just two months ago, when the company's vice president for human resources, Dan Jessup, said Groupon was in a "full-throttle" hiring mode. The company had just 50 workers in the summer of 2009, Jessup said then.
Jessup and Mossler declined to comment when asked about any possible merger talks or the details of Groupon employee compensation.
While a venture-backed company may award rank-and-file employees small fractions of a percent of equity early on, those stock grants diminish or go away completely once a company starts hiring at the pace Groupon has been on, according to Jim Smith, a partner with the venture capital firm MDV.
Still, some senior leaders hired early on at the director level likely are holding stock grants worth a quarter of a percentage point, or 0.25%, of Groupon's equity.
Even that fraction would be worth $15 million at a $6 billion sale price.
"That's a reasonable expectation," said Smith, whose firm is not an investor in Groupon.
About half Groupon's employees are in sales and the company has been hiring 125 or so new people per month at its headquarters, with most of those positions in sales.
Groupon's main customer demographic -- ages 18 to 34 -- are the same age as most of its workers.
Early venture capital investors, including New Enterprise Associates, which was the sole investor in Groupon's $4.8 million Series A round of financing in Jan., 2008, and Accel Partners, which led Groupon's $30 million Series B round, likely sold some of their stakes during the Series C round in April.
The funding announcement for that last round indicated that part of the amount raised would be used to "facilitate liquidity for employees and early investors."
For those who didn't sell all their shares then, Google may be about to reward their patience.
"If the deal goes down, a lot of people at Groupon are going to have a great holiday," said Steve Winings, senior partner with the executive recruitment fim Korn Ferry International.
Write to John Shinal
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