Thursday, November 3, 2011

Is Groupon the Biggest Ponzi Scheme of all time?

Move on over Bernard Madoff. As Joan Lappin of Gramercy Capital Management in San Francisco, california comes out and says the 11 book runners are out there trying to spread out the risk in case the deal goes lfat or down because Groupon does not have a viable business model as 95% of Grouponers never return to test out the product because the product certainly is not that good.

Sorry Andrew Mason you're still hitting a home run but the question begs is Groupon a bigger ponzi scheme than the biggest known one of all time? Each and every future deal is needed to pay off the past groupon deal as the accounting is shoddy and the only way to float the money after the 60 and 90 day period to previous vendors is to have a new one going out to pay the bills.

It's a shady but smart business model in many ways but smells fishy that they need the future business to pay off the past business and going to the open markets via an initial public offering seems to be the only way to safety.

None the less it's an interesting business model that I wasn't fond of from the start yet remained shocked as they blew up. Now the question is do they bear the same fate as LTCM & MF Global down the road?