If he was just trying to make money by flipping the domain name, than it might be a savvy business move. But his goal was to start a successful business and make more than a few hundred thousand dollars.
He could have named his company: randomstartupdeals.com, or something not as succinct as startups.com but much cheaper. Then he could have used that $500k to extend the life of his business (possibly through another pivot or two).
The domain was purchased in 2008. The startup that failed was launched only a year ago. So the $500k spent on this domain could not have been used for the daily deals venture because it didn't even exist yet.
However you are correct if a startup gets $X funding and spends $Y on a domain and then runs out of funding, if having $Y in cash at the end would have given them enough runway to significantly change their odds of success, spending that money on the domain might not have been the best idea.
It doesn't appear that is what happened in this case, though.
He could have named his company: randomstartupdeals.com, or something not as succinct as startups.com but much cheaper. Then he could have used that $500k to extend the life of his business (possibly through another pivot or two).