Expert predicts trickle-down effect for group buying after LivingSocial raises $110 million

US-based daily deals giant LivingSocial has raised another $US110 million from investors, with an industry expert predicting a trickle-down effect for smaller players.

LivingSocial, which has a user base of more than 85 million, was founded in 2007 by Aaron Batalion, Tim O’Shaughnessy, Val Aleksenko and Eddie Frederik.

In March 2012, it acquired Australian start-up Jump On It, one year after taking a 31% stake in the company, in a deal believed to be worth around $40 million.

Now it’s been revealed LivingSocial has received $US110 million in new funding from its investors.

The funding comes on top of more than $800 million the company has raised since it was founded.

Investors include Steve Case, Grotech Ventures, Revolution, US Venture Partners, Lightspeed Venture Partners, JP Morgan, T. Rowe Price and Amazon, which invested $175 million for a 29% stake in the company.

In a memo to staff, O’Shaughnessy said the funds will be used to “build our reserves, solidify our long-term plans, and execute against our vision for the future”.

“We have an aggressive roadmap for profitability and expansion this year, and those plans include increased investment in areas like marketing, technologies, and mobile,” he said.

“This new investment round will allow us to dedicate the resources we need, while also building a significant cash reserve against unanticipated events or bumps in the road.”

While LivingSocial doubled revenue in 2012 – from $250 million to $536 million, according to Amazon’s annual report – it continues to operate at a loss.

In 2012, the company had a net loss of $650 million, compared to $499 million the year before. In November last year, it laid off 400 employees, accounting for about 10% of its workforce.

O’Shaughnessy said the new investment does not alter the company’s plans to reach profitability.

Rather, it will give the company “even deeper resources to take advantage of new opportunities, extend our promising lines of business, and expand a robust funnel of new customers”.

Sam Yip, senior research manager at Telsyte, says LivingSocial’s latest fundraising shows the group buying and daily deals model is still valid.

“Because of the sheer amount of money they have and can invest, they [will be] testing out new markets,” Yip told StartupSmart.

“I expect LivingSocial to be investing that money into special geographies where they’re seeing a lot of growth.

“There is a lot of focus on Asia – it’s an untapped market when it comes to daily deals and online specials.”

Yip says there will “absolutely” be a trickle-down effect, although it will be more medium to long-term, suggesting smaller players shouldn’t directly compete with the likes of LivingSocial.

“Smaller players need to assess the market and see if they can apply that to any niche sectors,” he says.

“For smaller players it’s about picking and choosing the best of what they see, and appealing to local markets.”