DealsGoRound Raises Angel Funds to Be a Second Market for Groupon
Kris Petersen always wanted ride a Segway, so naturally when Groupon offered a tour of Chicago on those wacky human transporters at 50 percent off, he bought four so he could go along with friends.
“I live in Chicago, and was an early adopter of Groupon….I thought I would have no problem finding someone to go with, but for whatever reason, I ended up throwing $160 out the window,” he said.
To that end, Petersen started DealsGoRoundto create an online destination where people can sell their Groupon- or LivingSocial-like vouchers. “At the time, there was no discussion about what happens when they expire…I thought there had to be a better solution.”
In February, Petersen quit his full-time job after treating the company as a side project for the past year. Today, he is announcing that he’s raised about half a million dollars in funding to take the company to the next level.
His decision was made right as the competition started to heat up.
Petersen declined to say where the capital was coming from other than it was from prominent businesspeople in Chicago, which is also the hometown of Groupon. He says the angel funding will be used for engineering development of the products as well as customer acquisition.
To be sure, the secondary market is somewhat of a rogue phenomenon.
Petersen does not have permission or the blessing of Groupon or Amazon-backed LivingSocial to resell unused vouchers. In fact, when he’s broached the subject with the companies, the best he’s gotten is a no comment, he says.
In a statement, Groupon told us that its customers can easily give a Groupon to someone, by buying it for a friend. Otherwise, “we can’t guarantee the authenticity of Groupons sold on third-party resell sites.”
Well, neither can Petersen.
Right now, he’s offering a 60-day money back guarantee and if a voucher ends up being used or fake, they can reverse the transaction and give the person’s money back.
One way he tries to validate the purchase is by making every user get verified through a PayPal account. “We are hoping at some point to work directly with the deal providers, but for a majority of the time, it’s been a paper-based business, so even Groupon or LivingSocial doesn’t know if it’s been used or not.”
If a voucher ends up being fake, that person will not be allowed to participate again. However, he claims he has not had to exercise that guarantee even once.
To sell a voucher, a user must upload a PDF of the offer and set a price, which can be below or above what the paid for it. DealsGoRound takes 10 percent cut of the sale.
Currently, the company is operating in more than 50 cities nationwide.
He said inventory can differ drastically from city-to-city, but at any given time, each may have dozens or hundreds of active deals.
Last week, he said they sold more than 100 deals, but some weeks they sell less. Currently, they have 2,500 buyers and sellers who have registered on the site via their PayPal account, and the site registers thousands of unique visitors a week. Right now, the most expensive deal is $600 for a luxury car rental.
According to his homework, 10 to 20 percent of the vouchers go unredeemed, and it’s not because the people regret buying them. Rather they just won’t ever get around to using them before they expire.
Petersen points out that his margins are much smaller than Groupon’s or LivingSocial’s. While they make close to 50 percent of the purchase price, he’s only making 10 percent. Still, he believes that there has to be a healthy second market in order for consumers to be motivated to buy the originals. “The margins in the second market are nowhere near what they are for a Groupon clone. The second market is the natural progression. It validates the whole process.”
The degree of separation between Petersen, who lives in Chicago, and Groupon–the original deal site that’s also based there–is pretty much zero.
Up until DealsGoRound, Petersen was an entrepreneur in residence at Lightbank, a Chicago-based fund started by entrepreneurs, including a couple of founders of Groupon and other local startups. Petersen said despite his association with Lightbank, there’s no relationship between the fund and his new venture.