Exclusive: Grotech Sells LivingSocial Shares

One of the earliest investors in daily deals site LivingSocial, Grotech Ventures, exited its shares early, dealing much of the stake it held for about $200 million, according to multiple sources who were familiar with the process. The sale likely brought the firm a tidy profit.

Grotech did not use secondary markets for its stake sale, one source tells peHUB. Instead, the Vienna, Virginia-based venture capital firm opted to make private sales to investors including at least one hedge fund, and sold stakes in multiple blocks. Sources declined to comment on the buyers of LivingSocial’s stakes.

Grotech Ventures did not respond to repeated calls seeking comment. LivingSocial also did not comment for this story. It is unclear what portion of its stake Grotech exited.

The VC raised a seventh fund for about $106 million in 2009, according to Thomson Reuters data, after taking nine years between funds. Its prior fund was a $410 million fund. In 2008, Grotech led the $5 million Series A investment in LivingSocial, making it likely that its sixth fund also invested in the daily deals site. In fact, the firm’s investing in LivingSocial reads like a case study in market timing: Grotech contributed to four separate rounds in LivingSocial up to April 2010 (the rounds totaled $49 million). When LivingSocial started raising gargantuan rounds—reeling in nearly $600 million in two rounds over six months beginning late 2010—Grotech appears to have abstained from investing.

While it is too early to guess at returns, it is safe to say Grotech’s sixth and seventh funds will benefit substantially from its early-stage investments in the daily deals site. A comprehensive evaluation of the VC’s returns were not available, but, according to the Colorado PERA pension data, its 1989 Grotech Partners III fund generated 0.28% IRR, and its 1993 Grotech Partners IV fund produced an IRR of 15.19 percent.

The exit of LivingSocial shares pre-IPO by Grotech reflects a trend among venture capital firms and early-stage investors of getting out of companies early. Groupon’s founders and investors, including Accel Growth, 600 West Partners, NEA, Rugger Ventures and Green Media cashed out on equity via fundraising that preceded its IPO filing. No date has yet been picked for Groupon’s IPO, set to raise an additional $750 million.

Like some of its competitors, LivingSocial has been on the hunt making deals in 2011. In April, it bought SocialMedia.com, after its March acquisition of InfoEther. Other deals include its 2010 buy of Urban Escapes and BuyYourFriendADrink.com, in 2009. One of its competitors, BuyWithMe, also will soon raise a new round, sources told peHUB.

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