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Comment by run4yourlives | Hacker News Reader

Legal Pyramid Scheme, nothing more.

The founders and early stage investors build something semi-viable, then spend all their efforts on marketing. Some of helps to grow the product, but most to convince bigger investors to buy them out and assume the risk.

Why on earth would investors do this, you ask? Well, because they know that given the marketing, there will be other investors that will allow them to exit.

Repeat until IPO, then ride the wave until the explosion. Time it right you make a fortune.

Unfortunately, a minimum of effort goes into creating a lasting product with a proper valuation, so the moment that most investors realize that they aren't going to make their money back, ka-boom.

Dot bomb all over again. Groupon is not a billion dollar company.

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I know nothing special about Groupon but this does look really bad.

It's akin to finding a greater fool down the road to leave the bag with. Normally that wouldn't bother me too much but given that they're going public the last fool who ends up holding the back may be your average, every day investor.

Maybe they'll put their personal money in it. Maybe the company managing their retirement account will buy it. Either way, it'll be out there in the public for less sophisticated investors to buy.

And, given that they've used such a high percentage of their latter investments to pay out early investors, always always looks bad. It shows low confidence in the company in the long run.

I think it would be wise to stay clear of Groupon.

Maybe they'll put their personal money in it. Maybe the company managing their retirement account will buy it.

What makes it even more troublesome is how many times we've been through this in the past 10-15 years.

More accurately; it's a ponzi scheme, not so much a pyramid scheme. That said, I agree with exactly what you wrote in opinion around it.

Good point, you're of course correct.

Same result to the people on the bottom/outside though.

Looks like investors got what they were looking for:

http://www.theonion.com/articles/recessionplagued-nation-dem...

About Groupon in particular: "Groupon's first quarter 2011 revenues reached $645 million." Read more: http://www.businessinsider.com/groupon-files-for-ipo-2011-6?...

About your comment on the way founders 'produce' with the only purpose of raising capital instead of building a lasting product, I agree.

Groupon is on target for revenues in the $4 billion region this year (it was $2.6 billion last year).

That's more than the combined revenue of Facebook, Twitter and Linkedin last year (which were around $2.5 billion).

Groupon is a huge revenue machine, like it or not they are clearly a billion dollar company in an enormous untapped market.

Revenue can be a very misleading measurement of success. I agree that $4 billion in revenue is very impressive, especially considering the rate of Groupon's revenue growth, but overall losses and no profit plans any time soon, leaves me disappointed. What impresses me more is a company generating $10 million in revenue with $7 million in profit. Will Groupon eventually make money...maybe, but I'm not sure it will happen any time soon nor with their current business model. Groupon has two very valuable assets that I believe will eventually be used as the reasoning for an acquisition by Amazon or Google: 1) a large and growing list of consumers and 2) their buying habits.

You should invest in profit machines, not revenue machines.

Groupon's expenses are larger than their revenue, and have been since inception. This is a Bad Thing.

You could make an exception if unprofitably is caused by re-investment into a model that is proven to profitable but requires a certain level of scale.

Groupon isn't doing that however. What they're doing is reinvesting the money into other people's pockets.

Guess now it is clearer why Groupon wanted $1B in breakup fees from Google: http://news.ycombinator.com/item?id=1987181

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