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Comment by jordanb | Hacker News Reader

The G round investors are buying their way into the IPO.

They believe that the IPO will be huge regardless of Groupon's health, and there's a lot of money to be made on it, so they're purchasing -- from the early investors -- access to pre-IPO stock.

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If that's true, it lends more weight to the charge that the whole thing is a Ponzi scheme (later investors paying off early investors).

That's not the definition of a Ponzi Scheme. A Ponzi scheme is a confidence scam that requires deception. This is a bubble.

The investors in the last round knew that the money was being used to cash out the early shareholders. No one is claiming fraud.

Yes, but the G round investors still have a personal stake in ensuring the public are deceived into buying those IPO shares so they themselves can turn a profit. Deceiving is deceiving either way you cut it.

How can they be "deceived", when the entire internet is talking about it? Nobody is hiding anything; they filed an S1, just like every other public company.

Yes, but Groupon is deliberately excluding certain expenses, such as online marketing, from their CSOI in order to inflate their profitability. Excluding this figure seems quite deceiving since their figures imply they don't rely heavily on online marketing when, in fact, they do. They even contradict themselves in their filing by stating, "We spent $179.9 million on online marketing initiatives relating to subscriber acquisition for the first quarter of 2011 and expect to continue to expend significant amounts to acquire additional subscribers." Well if they are expected to continue to expend "significant" amounts to acquire subscribers, why are they excluding those costs in the CSOI?

If you can make this argument, so can potential investors. It isn't a secret.

Isn't a secret...to some. If Groupon knew all potential investors would come to these same conclusions, why inflate the CSOI figures in the first place? They may believe that their marketing costs may not stay high once they've locked users into their e-mail list, but there is a growing influx of companies diluting the concentration of their daily deals such as LivingSocial, GiltCity, BuyWithMe, and countless other clones. Even Google Offers and Facebook Deals are entering the market with a huge network at their disposal. With this growing competition, Groupon is going to need to continue spending more on marketing well into the future in order to replace lost sales and a deteriorating retention rate. Their marketing costs are going to continue to be significant and, until they prove otherwise, they should report them as such.

If the investors have had the uses of their investment disclosed to them then it's hardly a Ponzi scheme. Wether the investment is sound is a different question.

Ok, so they were in on the plan as @dhh's article suggests, but why did they put up so much (nearly a billion)?

That level only makes it harder for them to realize a high return.

30%-50% on $1bn is a really high return. The bigger the stakes, the lower the multiples. (That's why people use leverage.)

That's true, but leverage works both ways: if the IPO flops, it's a huge hole in their portfolios.

It'll be interesting to see what effect all this public criticism of the S1 filing does to the opening day price.

I'm guessing this public criticism is pretty much limited to tech savvy audiences so far. I haven't seen Groupon get this criticized on cnn, money.com or ft yet, so the wider public is probably still thinking this is a great deal.

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