4 ms·

I have trouble with these sorts of arguments. Hopefully I'm not putting up a strawman, but this is what I read: 1. There's a massive opportunity for X. 2

I have trouble with these sorts of arguments. Hopefully I'm not putting up a strawman, but this is what I read: 1. There's a massive opportunity for *X*. 2. Nobody is doing X, including business *Y*. 3. Y is well-positioned to transition (or "pivot") to X if it chooses. 4. ... 5. Profit. Even though I might agree with points 1, 2, and 3, there are a lot of moving parts and uncertainties between steps 3 and 5, what the fictional Reginald Jeeves calls "imponderables." I think that investing in a company on the basis of what it might do if a new market pans out is sound reasoning when making a VC investment. If you make ten such investments, perhaps one or two of them will pan out and you will make enough of a killing on them to pay for the others. However, I do not think this is sound reasoning when picking stocks in the public market. I think you have enough trouble just trying to figure out if a public company can succeed doing the business they're currently trying to do, much less a whole new business they haven't tried yet.

joe_the_user 15y ago
Actually, this is first Pro-Groupon argument I found remotely convincing. The point isn't so much that it shows Group will succeed, merely that it makes an argument that they could succeed. A Ponzi or pyramid scheme inherently cannot succeed. If an enterprise is Ponzi scheme, the smartness of the management, the prowess of the employees, the enterprises' momentum and everything else does not matter. But if an enterprise is not a Ponzi scheme, you can start looking at these factors. Groupon may or may not succeed like Amazon. But if there is a massive opportunity "out there", this means it is not completely irrational for investors to give them rooting around in this market until they succeed or convincing fail.
- raganwald 15y ago
  I'm prepared to agree that the post makes an enthusiastic case for points 1, 2 and 3 with respect to Groupon :-) And I think that the expression "Ponzi Scheme" is ridiculous, and you don't need this essay to know that Groupon are not paying dividends to public shareholders with money they raise selling stock to other shareholders.
  - johnrob 15y ago
    The Ponzi moniker is somewhat relevant in the sense that existing investors (angels and VCs) could cash out to the next series of investors (public market) before the company turns a profit.
    - raganwald 15y ago
      A Ponzi Scheme rests on misrepresenting new investments as income for existing investors. To date, I have seen no evidence of misrepresentation. Cashing out before the next round invests is not a pyramid or Ponzi scheme, it's exactly what happens when you buy a public stock for $100 and sell for $200: Somebody else is willing to pay $200 and you sell your shares to them. The fact that this happens before they make a profit and before they go public is irrelevant, that speaks to the mindset of the people buying the stock for $200, not to those selling for $200. Now if they lied about being profitable and were merely using invested funds to generate fictitious revenue that turns into fictitious dividends, you might have something. During the last bubble, there were cases where investors put a bunch of money into a company and then demanded that it spend a bunch of that money on another company in their portfolio, effectively creating fictitious revenues. I'd go along with calling those deals "Ponzi Schemes." But this one? Not a Ponzi Scheme, just people who are willing to make a bet on Groupon's success. p.s. http://en.wikipedia.org/wiki/Ponzi_scheme http://en.wikipedia.org/wiki/Ponzi_scheme is instructive. Especially the description of "similar schemes" and the word "bubble." (I am not making any claim about Groupon stock being or being part of a bubble).
      - johnrob 15y ago
        I agree. I was almost going to make a similar argument a few days ago, but ultimately decided not to because the masses have effectively redefined what that term means. At this point, "Ponzi Scheme" has become a general term for financial sketchiness. The challenge becomes how to how to denounce the Ponzi term without also denying the presence of financial engineering. Your argument does this as well as possible IMO. When a pundit claims that Groupon is a Ponzi scheme, he really means "Groupon is raising money and using the money to buy more revenue at more than face value". We don't really have a classification for what this is, and the proposed scheme seems somewhat scam-ish, so the Ponzi term is being used. I'm not claiming that Groupon is simply raising money and buying revenue. But I do believe that's what the pundits mean to say when they call Groupon a Ponzi scheme.
- mikeryan 15y ago
  I think the article makes a decent point to the value of Groupon (I think there's real value in Groupon's business). The issue I have with the article is how amorphous business relationship + ??? = $25 Billion Dollars[1] [1] Must be said in your best Dr. Evil Voice.
- warmfuzzykitten 15y ago
  Bah. You don't know it's a Ponzi scheme until it collapses. Of course it sounds plausible. They all do. Just a little too good to be true.
warmfuzzykitten 15y ago
Yes, somebody is going to make a lot of money. But Groupon? I don't think so. Merchants get burnt. Users get spammed. How many users stick with it for more than a couple of weeks?

I have trouble with these sorts of arguments. Hopefully I'm not putting up a strawman, but this is what I read: 1. There's a massive opportunity for *X*. 2

joe_the_user 15y ago

Actually, this is first Pro-Groupon argument I found remotely convincing. The point isn't so much that it shows Group will succeed, merely that it makes an argument that they could succeed. A Ponzi or pyramid scheme inherently cannot succeed. If an enterprise is Ponzi scheme, the smartness of the management, the prowess of the employees, the enterprises' momentum and everything else does not matter. But if an enterprise is not a Ponzi scheme, you can start looking at these factors. Groupon may or may not succeed like Amazon. But if there is a massive opportunity "out there", this means it is not completely irrational for investors to give them rooting around in this market until they succeed or convincing fail.

raganwald 15y ago
I'm prepared to agree that the post makes an enthusiastic case for points 1, 2 and 3 with respect to Groupon :-) And I think that the expression "Ponzi Scheme" is ridiculous, and you don't need this essay to know that Groupon are not paying dividends to public shareholders with money they raise selling stock to other shareholders.
- johnrob 15y ago
  The Ponzi moniker is somewhat relevant in the sense that existing investors (angels and VCs) could cash out to the next series of investors (public market) before the company turns a profit.
  - raganwald 15y ago
    A Ponzi Scheme rests on misrepresenting new investments as income for existing investors. To date, I have seen no evidence of misrepresentation. Cashing out before the next round invests is not a pyramid or Ponzi scheme, it's exactly what happens when you buy a public stock for $100 and sell for $200: Somebody else is willing to pay $200 and you sell your shares to them. The fact that this happens before they make a profit and before they go public is irrelevant, that speaks to the mindset of the people buying the stock for $200, not to those selling for $200. Now if they lied about being profitable and were merely using invested funds to generate fictitious revenue that turns into fictitious dividends, you might have something. During the last bubble, there were cases where investors put a bunch of money into a company and then demanded that it spend a bunch of that money on another company in their portfolio, effectively creating fictitious revenues. I'd go along with calling those deals "Ponzi Schemes." But this one? Not a Ponzi Scheme, just people who are willing to make a bet on Groupon's success. p.s. http://en.wikipedia.org/wiki/Ponzi_scheme http://en.wikipedia.org/wiki/Ponzi_scheme is instructive. Especially the description of "similar schemes" and the word "bubble." (I am not making any claim about Groupon stock being or being part of a bubble).
    - johnrob 15y ago
      I agree. I was almost going to make a similar argument a few days ago, but ultimately decided not to because the masses have effectively redefined what that term means. At this point, "Ponzi Scheme" has become a general term for financial sketchiness. The challenge becomes how to how to denounce the Ponzi term without also denying the presence of financial engineering. Your argument does this as well as possible IMO. When a pundit claims that Groupon is a Ponzi scheme, he really means "Groupon is raising money and using the money to buy more revenue at more than face value". We don't really have a classification for what this is, and the proposed scheme seems somewhat scam-ish, so the Ponzi term is being used. I'm not claiming that Groupon is simply raising money and buying revenue. But I do believe that's what the pundits mean to say when they call Groupon a Ponzi scheme.
mikeryan 15y ago
I think the article makes a decent point to the value of Groupon (I think there's real value in Groupon's business). The issue I have with the article is how amorphous business relationship + ??? = $25 Billion Dollars[1] [1] Must be said in your best Dr. Evil Voice.
warmfuzzykitten 15y ago
Bah. You don't know it's a Ponzi scheme until it collapses. Of course it sounds plausible. They all do. Just a little too good to be true.

warmfuzzykitten 15y ago

Yes, somebody is going to make a lot of money. But Groupon? I don't think so. Merchants get burnt. Users get spammed. How many users stick with it for more than a couple of weeks?