Groupon Inc.'s decision to push ahead with an initial publicoffering as other startups hold off may be driven more by necessitythan choice: The company needs cash to keep growing and is nearingthe number of shareholders that requires it to report financialresults.

Groupon is seeking to raise as much as $540 million, saying itwon't need to use the money for at least a year and has no urgentcash needs. Even so, the biggest provider of online daily dealsowed almost twice as much to merchants at the end of September asit held in cash. Marketing costs rose 37 percent in the latestquarter, four times as quickly as its cash pile.

Proceeding now may cushion Groupon against slowing sales growthand ballooning costs and give the company time to tweak itstrategy, including cutting its marketing expenses, according toresearch firm PrivCo. Groupon is taking its chance amid the biggestIPO backlog since 2000, as other startups delay offers because ofstock-market volatility.

“They may have a cash flow problem and need the funds,” said EdKetz, an associate professor of accounting at Pennsylvania StateUniversity. “At some point they have to change the business modelin some way.”

Groupon, based in Chicago, remains unprofitable. The company had$243.9 million in cash at the end of September and still owedmerchants $465.6 million. The 8.4 percent increase in cash from theprior period was outstripped by the rise in marketing costs, whichjumped 37 percent to $234.4 million.

The company has used 85 percent of the $1.11 billion it hasraised from venture capitalists and other investors to buy equityfrom early investors eager for a return, instead of funding growth.That is contributing to a potential cash crunch, said Sam Hamadeh,chief executive officer of New York-based PrivCo, which providesfinancial data on more than 20,000 private companies.

“They can't go back at this point,” Hamadeh said.

Groupon said in its prospectus that the company doesn't need thecapital, because of its cash on hand and the amount being generatedfrom operations. Cash from operations totaled $129.5 million in thenine months through September.

“We do not expect that we will utilize any of the net proceedsof this offering to fund operations, including online marketingexpenses, during the next 12 months,” the company said. Grouponsaid it might use the proceeds for general corporate purposes,including possible acquisitions.

Julie Mossler, a spokeswoman for Groupon, declined toelaborate.

A growth slowdown amid rising competition still may necessitatea change in plans. Already the pace of sales growth is taperingoff. Third-quarter revenue increased 9.5 percent from the previousperiod, following quarter-over-quarter growth rates of 33 percentand 72 percent in the two previous periods.

Groupon faces escalating competition from LivingSocial andGoogle Inc., which are giving more favorable terms to merchants.That's led Groupon to accept lower margins to avoid losingbusiness. The amount of billings the company booked as revenueshrank to 37 percent in the third quarter from 42 percent in theprior period and 44 percent in the first quarter. Grouponattributes the lower margins to getting into new products, liketravel and event tickets.

“There's a lot of people getting into Groupon's markets,” CarterMack, president of JMP Group Inc. in San Francisco, said in aninterview on “Bloomberg West.” “The company is currently gettingvalued at a pretty high value, so people are going to havequestions about the sustainability of that growth.”

Groupon's hand is also being forced by growth in its investorbase. The company has close to 500 shareholders, according to aperson familiar with the matter. At that threshold, the U.S.Securities and Exchange Commission requires companies to disclosefinancial results, even if they aren't public. Facebook Inc. plansto start reporting financials by April because of the shareholderlimit. Once it reaches that number, Groupon would be bound toupdate its results quarterly.

Mossler declined to comment on the number of shareholders.

A.B. Mendez, a senior research analyst at GreenCrest CapitalManagement LLC in New York, said there are plenty of good reasonsfor Groupon to sell shares. It can provide publicity heading intothe Thanksgiving and Christmas shopping seasons, and the offeringwill attract retail investors because people know the company'sname.

Groupon is also adding to its cash pile while only selling about5 percent of the company, meaning it can do a bigger offeringlater, Mendez said. The company is considering whether to increasethe IPO price range amid higher-than-expected demand for the sharesfrom investors, three people with knowledge of the matter said.

Groupon has been planning to sell 30 million shares at $16 to$18 apiece, out of the 630.4 million shares that will beoutstanding after the offering. At the midpoint of the price range,Groupon would be valued at $10.8 billion.

“We're seeing pretty strong demand on the part of institutionalinvestors, and you'll see uncommonly strong demand from retailinvestors,” Mendez said. “Sell now, because it's a great marketingevent ahead of the fourth-quarter holiday retail season, which isgoing to be crucial for them.”

Founded in 2008 by Andrew Mason, Eric Lefkofsky and BradKeywell, Groupon gained popularity last year by offering discountsof 50 percent to 90 percent at businesses like restaurants, nailsalons and resorts. Groupon originally kept about half the revenue,giving the rest to the merchant.

Sales in 2010 surged to $312.9 million from $14.5 million theprevious year, a growth rate so fast that Google offered to buy thecompany for $6 billion last year. Groupon rejected the deal,choosing instead to raise $950 million in private capital and stayindependent while pushing toward an IPO.

That strategy came under fire in June, when Groupon filed itsprospectus, showing the company had lost $540.2 million in threeyears and that in the first quarter alone had spent $179.9 millionto bring in subscribers.

Then the missteps began. Lefkofsky, the chairman, told BloombergNews the following week that he expected the company to be “wildlyprofitable,” a statement the company later asked investors todisregard in a regulatory filing. Company executives are forbiddenfrom talking about financials during the so-called quiet periodbefore an IPO.

In September, the company restated its revenue figures toexclude sales passed on to merchants and announced the departure ofits second operating chief in six months. This month, Groupon saidit had a net loss of $214.5 million for the first three quarters of2011.

Meanwhile, the European debt crisis and concerns about the U.S.economy dragged down the stock market and slowed the pace of IPOs.The Standard & Poor's 500 Index dropped 19 percent from July 7to Oct. 3, amid concerns that the crisis in Europe would lead to aglobal economic slowdown.

The market has since rebounded, with the S&P 500 gaining 14percent so far in October, erasing its 2011 loss. European leadersagreed last week to expand a bailout fund to stem the debtcrisis.

“None of us can control what's going on with debt in Europe soif you want to go public just go and see what the market is likelater if you want to raise more,” said Lise Buyer, founder of IPOadvisory firm Class V Group. “There's been so much noise about thisIPO they may just want to get it in the rearview mirror.”

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