What LivingSocial is Doing with New Investment

LivingSocial recently raised $400 million in new venture capital funding, saying that the money would be used pursue "aggressive domestic and international growth and continued product innovation."

But half the money appears to be going to an early cash out of early investors and members of company management. That isn't illegal. But it might make other investors wonder whether the current valuations of social shopping companies are warranted.

Groupon used $573 million of a $950 million funding round for liquidity purposes, essentially allowing early backers to gain some liquidity from some of their holdings. Of course, in Groupon's case the board had just rejected a $6 billion buyout offer from Google, and some of its shareholders were upset about missing out on an early payday.

LivingSocial plans to repay early supporters