PrivCo, a research firm that tracks private companies, reported yesterday that daily-deals company LivingSocial had taken an "emergency" round of debt from current investors.

Now LivingSocial CEO Tim O'Shaughnessy has strongly denied that report in an email to employees obtained by Fortune's Dan Primack.

LivingSocial is the No. 2 player in the daily-deals market behind Groupon, whose stock has taken a hammering since it went public in 2011. Amazon is a major investor in it.

In particular, O'Shaughnessy said that quotes attributed by PrivCo to a senior executive at the company are "fiction," and the deal, in which the company sold a 7.5% stake for $110 million, values the company at nearly $1.5 billion.

He confirmed that this was a "down round"—an investment done at a lower price than previous rounds. A previous round valued the company at $5.7 billion.

But he said that employees' options would still be worth something in the event that the company sold for $1 billion or more.

Venture-capital investors typically put money into startups in the form of preferred shares. Those shares typically come with preferences that guarantee that investors will at least get their money back from any sale, and sometimes get a larger share of the proceeds than their straight-up ownership percentage would indicate.

PrivCo suggested that LivingSocial had taken on debt, which would be very dangerous for the company's business—since debtholders would have to be paid off before LivingSocial's merchants. If merchants grew worried that they wouldn't get fully paid for deals they ran, that could cripple LivingSocial's business.

Meanwhile, Primack reports on Twitter that PrivCo is "standing by its story." So we'll keep watching.

LivingSocial and an investor, Jeremy Liew of Lightspeed Venture Partners, did not respond to requests for comment on PrivCo's report yesterday.

Thursday morning, Andrew Weinstein, a spokesperson for LivingSocial confirmed the authenticity of the memo and provided us with a copy. Here it is in full: 

Hey folks,


If you've seen some of that misinformation, here's the real story:


This was an equity round, not a debt infusion.


There were no warrants issued as part of this round.

There were no "double-digit" cash dividends. (Typical of many financing rounds, including our own past rounds, there was a nominal 3% dividend for a class of shares.)

There is no "4x liquidation preference." (Once again, typical of almost all venture rounds, there is a liquidation preference, but it slides up or down based on a key metric and gets nowhere near 4x.)

The quotes from a "senior LivingSocial communication executive" are straight up fiction.

Two of the three investors listed on the PrivCo site as participating in the round didn't participate, and one isn't even an investor in the company.

On valuation, people always seem to be overly enamored with market value, which has puzzled me because as a private company, there is no liquid market on which to buy and sell shares, so a valuation is established without any degree of market efficiency. In short, it's an educated guess between the company and a set of investors at one particular snapshot in time.


We are a company that does over half a billion in revenue. If we stay diligent, we hope to turn the corner to become profitable soon. Thanks to this round, we have significantly more capital to be able to be opportunistic and drive the future growth of the business.

Hopefully this will help clear up any questions you may have or get on yesterday's round. Now it's back to executing on our plan.

~ Tim