VCJ Report: The Groupon Effect Sweeps Britain

If imitation is truly the sincerest form of flattery, then Groupon must be feeling pretty good about itself. After all, consider how so many startups are trying to emulate the success of the daily deals website.

In truth, Groupon doesn’t need validation from up-and-comers to feel giddy about itself. The Chicago-based company earlier this month filed its long-anticipated IPO, which could likely raise $1 billion or more while it achieves a valuation of $20 billion, by some estimates.

But success begets success. So across the Pond, a number of startups are trying to duplicate the success of Groupon and other group buying sites. As Jennifer Hill, a London-based contributor, reported in the latest issue of Venture Capital Journal, 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 and a growing band of fledgling companies in the United Kingdom are vying for a slice of an e-commerce pie made more profitable by the rise of social media.

Social media has opened up a new universe to e-tailers, according to Tom Valentine, managing director of Secret Escapes, a members-only social shopping luxury travel website that started in January and has just recently attracted venture funding. Other niche players include Huddlebuy.co.uk, a group buying site specifically for small businesses. The site launched in January 2011 and attracted $570,000 in funding in March.

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. By the way, Groupon is also active in Europe, having acquired Berlin-based CityDeal (which raised more than $12 million in funding) last year, then rebranding it. Today, Groupon U.K. offers daily deals in 27 cities and has more than 8 million subscribers.

“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 helping local businesses harness the power of the Web to generate new business.”

And others are paying notice.

Similar sites have sprung up. Among them is exclusive social buying club Keynoir.com, which went live in March 2010. Keynoir has raised about $2.2 million in funding from Index Ventures and PROfounders Capital. Serial entrepreneurs Paul Birch, co-founder of BirthdayAlarm, and Andrej Henkler, a former Bertelsmann executive, have also invested.

The company is now poised to launch Keynoir Escapes, before expanding across Europe in 2012, either organically or by a second funding round.

“We were all trying to get up and running before Groupon came over from the U.S.,” Philip Wilkinson (pictured), co-founder and managing director of Keynoir, tells VCJ. “It’s not a new concept, but the time is now right. A lot more people trust the Internet and people are far better connected through their social networks.”

VCJ Subscribers can read the full story here.

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And if you want to talk more about venture activity in Europe or chat about another hot sector of interest, send an email to VCJ Editor-in-Charge Alastair Goldfisher at alastair.goldfisher@thomsonreuters.com.

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