The Man Who Predicted Groupon’s Funding

Groupon Inc.’s announcement last Thursday that it raised $500 million of equity financing on the way to a $950 million round is not, in fact, new news.

What is new is the man who predicted it. MerchantCircle co-founder Ben Smith IV and I chatted a couple days prior to the unveiling and he was adamant about the building interest in Internet startups promoting local advertising, local publishing and the like. The space will see a surge of investor interest this year, said Smith, singling out Groupon.

Google’s spurned interest in Groupon has every VC excited, he told me, and a megadeal could take place. How right he was!

Of course, Smith’s MerchantCircle is at the heart of this trend. The company for five years has been creating an online platform for local businesses to promote themselves and now has a client base approaching 2 million businesses. Smith says MerchantCircle’s revenue continues to grow and that the company is cash flow positive.

In 2011, expect to see VCs put $100 million of seed capital into the local space, he went on to say. That will be independent of follow on rounds.

“There’s going to be some large checks written,” Smith said.

Remind me to call him in a few weeks for more predictions. He has a knack for it.

By the way, Groupon, of Chicago, did not identify any of the investors behind the new money. It did say in a Securities and Exchange Commission filing that just over $344 million of it would be used to cash out the holdings of some of the company’s directors.