Lessons on how not to launch your IPO. Courtesy: GroupOn

US-based GroupOn helped start the group-buying mini-bubble, spawning a huge number of copycats and competitors in the US, China and elsewhere. GroupOn will float on the market today, but it’s been a rocky road.

Reuters is reporting that the IPO will value the company at $12billion with a share value a dollar or two above the offering price, but that is only after the company did an eleventh hour PR blitz and dramatically cut the size of the offering.

It will be one of the smallest IPOs this year and only offer 5 percent of the company. The cut in the offering size cut the supply so it was more in line with the demand. Sceptics might say the reduction created a bit of artificial scarcity to pump up the price.

[caption id=“attachment_44041” align=“alignleft” width=“380” caption=“GroupOn’s IPO has dot.com craziness stamped all over it. AFP”] [/caption]

Even if it hits $12billion, that is still half of the wild whisper numbers heard earlier this spring. Yes, the brutal halving of the offering is partly down to lead up to the float has been plagued with rumours, drama and even a lawsuit or two. In fact, a last minute bit of enthusiasm might be as much about relief that the IPO won’t be as horrific as it looked a few weeks ago rather than actually a solid offering.

The float provides a number of clear lessons for start-ups looking to go public.

Don’t let the hype get ahead of the reality: GroupOn’s CEO used to be in a rock band, and he has created a maverick personna. In the early days of GroupOn, it helped created the air of being edgy and innovative. However, GroupOn’s IPO dreams came crashing back to earth after it released its actual numbers. The company spent $613million on marketing in the first nine months of 2011. In the first quarter of this year, it spent a stunning 78 percent of revenue on marketing. In the second quarter, those costs drove losses of $102.7million .

It cut marketing spend and losses in the third quarter, but that also led to a slowing of subscriber growth. It was also revealed that while they have 143 million subscribers, only 30million were paying customers in the third quarter .

You don’t have to be profitable to launch on the stock market, but if people are expecting a profit rocket and find a cash black hole, your IPO dreams will be crushed.

‘Rockstar’ CEOs need adult supervision

Founders often bring in people with business experience to help them take their companies to the next level. Don’t over-awe yourself by having CEO on your business card.

If you want further evidence of this, just look to Google, who brought in Eric Schmidt to help them shepherd the Google from a dazzling research project to the multi-billion search and mobile behemoth it is today.

GroupOn’s Mason first made headlines for the right reasons and then quickly for the wrong reasons. Solid, staid C-level execs have brought a bit of stability to the company, but it came very late and almost cost the company their IPO. Sadly, GroupOn seems to have difficulty even holding on to execs. It has lost its COO and head of PR since filing for the IPO .

Drama helps reality shows, not IPOs

The company has stumbled from mini-crisis to mini-crisis in the lead up to the float. Just last week, Mason said that company would replace 10 percent of its “worst-performing” sales staff .

More than that, GroupOn is the kind of company that lawyers love. In September, sales staff filed a class action suit against the company for failing to pay overtime. Last year, it responded to a class action lawsuit over expiration dates on its discounts by offering to sue itself . You cannot make this stuff up.

The media love the fall even more than the rise

The media attention probably went to Mason’s head. He wouldn’t be the first, but he should have known that the one thing that pundits love to do more than make a hero is to destroy that very same hero. Newspaper, news site and blog pages are filled with stories of the fallen hero.

Also, after the dot.com bubble and credit crash, journalists are now constantly on the watch for the next bubble, and after helping create the hype, they were only too ready to help GroupOn go pop.

Be patient, a waiting game often pays off handsomely

Again, look to Google. They built a solid company first before launching on the market, and Facebook’s waiting game will pay off handsomely. Due to market regulations, you can’t wait forever, but it’s better to build first and float later rather than to try to use the IPO to get you to a valuation you might only enjoy for a while before coming crashing back down to earth.

Be honest, don’t flatter your numbers

GroupOn got caught trying to flatter its numbers. The US equity watchdog, the Securities and Exchange Commission, forced the company to ‘amend’ - let’s cut the crap and just correct - its registration filing. The company “understated operating losses by $120 million by excluding non-cash expenses and online marketing expenses”, according to Anthony H. Catanach Jr. writing at DealBook .

There is one thing in short supply right now in markets the world over: Trust.

If GroupOn is getting slapped on the hands now for dodgy accounting, do you really think they are going to change their ways after being valued at $12billion?

This IPO has dot.com craziness stamped all over it. CNBC’s shock stock picker Jim Kramer had this bit of advice (via GigaOM) :

“I think you’d be a fool not to try to get some shares in this deal and take advantage of it, so long as you sell on the spike in the first day. …I think you will get an initial pop, but after that you don’t want to be left holding the bag. So please, do get some shares in the deal. And then get out.”

Good advice for day traders, but for the rest of us, it’s probably yet another reason to stay well clear. Maybe some good can come of this debacle. If your company has just gone public, what lessons did you learn on the way?