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I'm glad you said this. I gave up on a reply yesterday to the initial story for lack of time, but basically it said "anyone that thinks that Groupon is like a

by 3am 15y ago

I'm glad you said this. I gave up on a reply yesterday to the initial story for lack of time, but basically it said "anyone that thinks that Groupon is like a Ponzi scheme doesn't understand how a Ponzi scheme works". You can say all you want about their lack of differentiation from competitors, there huge debt levels, their dicey use of the series G funding, and what appears to be a poorly scaling business model. You can intend to short them, sell puts.... whatever. But stop calling them a Ponzi scheme. It's an insult to them, it's hyperbolic, and it's ignorant.

bcrescimanno 15y ago
I disagree. The heart of a ponzi scheme is continually securing new investments to pay out earlier investors--which is exactly how Groupon has operated up to this point. They're not alone in this concept; it's becoming increasingly common in the tech industry. The only argument to say that they're not a ponzi scheme is that there's actually a legitimate business with revenue associated with it. It's a somewhat compelling argument--but I'd personally contend that the business, in this case, has really been nothing more than a front for the scheme (at least, historically speaking--though unlikely, Groupon may yet prove out to become a profitable business). No one has made a dime of profit off of the business that is Groupon--yet several early investors and the founder have made an absolute killing based on the "ponzi" side of things. Dress it up however you want, people have made money hand-over-fist operating a de facto ponzi scheme; having a "real" business along with it has shielded them from the ire of the law.
- 3am 15y ago
  "The only argument to say that they're not a ponzi scheme is that there's actually a legitimate business with revenue associated with it." That isn't a minor point. There is a big different between stupid investors with full information and a Ponzi scheme. It is not an abstract argument. The first is common, the second will land you in prison.
  - bcrescimanno 15y ago
    If the purpose of a business is to generate profit for its owners (investors), then the only business Groupon has successfully operated to this point has been a ponzi scheme. Just because it's common doesn't mean it's not a ponzi scheme. It's just a ponzi scheme in a pretty dress. I'd be willing to go further and say it's just as bad because if you read their S1 and their made up accounting "principles," they're actually attempting to deliberately mislead people into thinking the business is in a much better state than it really is. Again, it may be possible to transform Groupon into a legitimate business going forward; however, to this point, it's been anything but that.
    - 3am 15y ago
      fwiw, I upvoted both of your comments. I think it's obvious this is a difficult subject based on how many intelligent people disagree on it. I very strongly disagree with your conclusion, but I respect it and disagree with the downvotes.
      - bcrescimanno 15y ago
        Totally fair to disagree. I've enjoyed the discussion. It's forced me to re-evaluate my thinking on the topic. While I still think there are strong elements of a ponzi scheme at work here and that there truly is a de facto ponzi scheme; Groupon doesn't really qualify as an de jure ponzi scheme. That said; what's more important than the vocabulary is understanding the total lack of ethics happening here--and the fact that (unlike the early investors who are now going to make their big bucks) the general public who are foolish enough to buy into Groupon will likely never see that investment returned and the only reason the early investors will get money is the investment capital from the IPO will be funneled to them.
    - rayiner 15y ago
      You're basically saying that any business that doesn't generate profits from day 1 is a ponzi scheme. This is a ridiculous position to take.
- Goladus 15y ago
  > The heart of a ponzi scheme is continually securing new investments to pay out earlier investors. The difference is the nature of the deception. In a ponzi scheme, you accept an investment, buy yourself a new house, and then tell the investor they're earning 10%. You flat-out lie about what you did with the money, and year after year you you keep enough cash around to make incremental pay outs as necessary to maintain the illusion of a stable, well-performing portfolio. It's 100% deception and the element of theft is obvious. With GroupOn, the risks may be downplayed and the potential benefits exaggerated, but certainly right now no one should invest without understanding that investing means significant risk. Furthermore, it's been published what money has gone to cash out early investors, and what money has been invested into the company. The ethics are definitely questionable, but then the ethics of a casino are questionable, too. The ethics of a ponzi scheme are not questionable-- it's straightforward lying and stealing.
m311ton 15y ago
Doesn't this all fit into the category of a leveraged buyout?

by 3am 15y ago

bcrescimanno 15y ago

I disagree. The heart of a ponzi scheme is continually securing new investments to pay out earlier investors--which is exactly how Groupon has operated up to this point. They're not alone in this concept; it's becoming increasingly common in the tech industry. The only argument to say that they're not a ponzi scheme is that there's actually a legitimate business with revenue associated with it. It's a somewhat compelling argument--but I'd personally contend that the business, in this case, has really been nothing more than a front for the scheme (at least, historically speaking--though unlikely, Groupon may yet prove out to become a profitable business). No one has made a dime of profit off of the business that is Groupon--yet several early investors and the founder have made an absolute killing based on the "ponzi" side of things. Dress it up however you want, people have made money hand-over-fist operating a de facto ponzi scheme; having a "real" business along with it has shielded them from the ire of the law.

3am 15y ago
"The only argument to say that they're not a ponzi scheme is that there's actually a legitimate business with revenue associated with it." That isn't a minor point. There is a big different between stupid investors with full information and a Ponzi scheme. It is not an abstract argument. The first is common, the second will land you in prison.
- bcrescimanno 15y ago
  If the purpose of a business is to generate profit for its owners (investors), then the only business Groupon has successfully operated to this point has been a ponzi scheme. Just because it's common doesn't mean it's not a ponzi scheme. It's just a ponzi scheme in a pretty dress. I'd be willing to go further and say it's just as bad because if you read their S1 and their made up accounting "principles," they're actually attempting to deliberately mislead people into thinking the business is in a much better state than it really is. Again, it may be possible to transform Groupon into a legitimate business going forward; however, to this point, it's been anything but that.
  - 3am 15y ago
    fwiw, I upvoted both of your comments. I think it's obvious this is a difficult subject based on how many intelligent people disagree on it. I very strongly disagree with your conclusion, but I respect it and disagree with the downvotes.
    - bcrescimanno 15y ago
      Totally fair to disagree. I've enjoyed the discussion. It's forced me to re-evaluate my thinking on the topic. While I still think there are strong elements of a ponzi scheme at work here and that there truly is a de facto ponzi scheme; Groupon doesn't really qualify as an de jure ponzi scheme. That said; what's more important than the vocabulary is understanding the total lack of ethics happening here--and the fact that (unlike the early investors who are now going to make their big bucks) the general public who are foolish enough to buy into Groupon will likely never see that investment returned and the only reason the early investors will get money is the investment capital from the IPO will be funneled to them.
  - rayiner 15y ago
    You're basically saying that any business that doesn't generate profits from day 1 is a ponzi scheme. This is a ridiculous position to take.
Goladus 15y ago
> The heart of a ponzi scheme is continually securing new investments to pay out earlier investors. The difference is the nature of the deception. In a ponzi scheme, you accept an investment, buy yourself a new house, and then tell the investor they're earning 10%. You flat-out lie about what you did with the money, and year after year you you keep enough cash around to make incremental pay outs as necessary to maintain the illusion of a stable, well-performing portfolio. It's 100% deception and the element of theft is obvious. With GroupOn, the risks may be downplayed and the potential benefits exaggerated, but certainly right now no one should invest without understanding that investing means significant risk. Furthermore, it's been published what money has gone to cash out early investors, and what money has been invested into the company. The ethics are definitely questionable, but then the ethics of a casino are questionable, too. The ethics of a ponzi scheme are not questionable-- it's straightforward lying and stealing.

m311ton 15y ago

Doesn't this all fit into the category of a leveraged buyout?