Internet Ponzi Scheme 2.0



  •  According to this article, Twitter is close to finishing up "an $800 million funding deal that will include a second part in which
    around $400 million of the total will be used to cash out current
    investors."

    So they are going to take money from new investors so that they can pay off other people who have already invested in Twitter.  Isn't that why Bernie Madoff is in jail?




  • This is not really a Ponzi scheme. A true Ponzi scheme would be pretending to invest the money somewhere else in order to pay dividends. This is really a stock buyout. One issue you face when going public is that any stock already owned isn't able to be traded publicly. You have to convert it somehow into the common stock that's being traded. Sometimes, you can still hold the older type of stock, and do the conversion when you're ready to sell. It all depends on how it's set up. Sometimes, the older stock may get additional voting rights or something, in lieu of being publicly tradeable.

    No doubt a lot of people got stock or stock options as compensation, and they'd really like to be able to cash that in, since their trading options were previously probably pretty limited or non-existent.



  • @boomzilla said:

    This is not really a Ponzi scheme.. . . . . . . This is really a stock buyout.
    So why isn't Twitter using their own money to buy back the stock?  I understand the various technicalities of privately held vs publicly traded, but it still boils down to Twitter is taking money from new investors in order to pay off earlier investors. Which is pretty much the definition of a Ponzi scheme.



  • @El_Heffe said:

    So why isn't Twitter using their own money to buy back the stock?  I understand the various technicalities of privately held vs publicly traded, but it still boils down to Twitter is taking money from new investors in order to pay off earlier investors. Which is pretty much the definition of a Ponzi scheme.

    Firstly, you've got an incomplete definition. The purveyor of a Ponzi scheme tells new investors that he's investing their money in whatever the scheme claims to be. Instead, he uses those funds to live the good life and pay dividends to earlier investors to make his scheme look good.

    An IPO is a way for investors to buy ownership stakes in the company. They're getting that, and their motivation for investing is for the value inherent in the company. Presumably, the company believes that it can use the extra capital to expand or whatever. And their financial position tells them that selling equity is a better way to go than debt. Of course, whenever you sell equity, people who already had some equity see their ownership diluted. In this case, part of the capitalization of selling stock will go towards a buyout, which will actually reduce some of the dilution due to selling more stock.

    In that sense, it's really an automatic conversion of the previous stock, along with a buyout. The current holders may have some sort of option about what they want to do, which might include just converting the stock at whatever the conversion price is, so that they can simply continue to hold the stock.

    TRWTF is what they need with so much money. Especially considering:

    @TFA said:

    Twitter is still struggling with coming up with a truly lucrative business model, and its execs have presented a number of them, such as promoted tweets, largely based on advertising.

    It all seems very reminiscent of the original internet bubble.



  • It isn't a Ponzi scheme if you know what you are investing in.  The people putting in the 800 million know that half of that is going to buy out some people.  Nothing wrong with that.



  • @Salami said:

    It isn't a Ponzi scheme if you know what you are investing in.  The people putting in the 800 million know that half of that is going to buy out some people.  Nothing wrong with that.

    I agree; the differentiator here, in simple terms, is that Twitter isn't lying to anybody about where the money's going.



  • Makes me wonder how tumblr is funding itself. There's absolutely nothing there in the form of ads.



  • @dhromed said:

    Makes me wonder how tumblr is funding itself. There's absolutely nothing there in the form of ads.

    They save a lot of money having the site constantly broken.



  •  It's broken right now! :D :D

     

    D:



  •  @blakeyrat said:

    @dhromed said:
    Makes me wonder how tumblr is funding itself. There's absolutely nothing there in the form of ads.

    They save a lot of money having the site constantly broken.

    THIS!



  • @hoodaticus said:

     @blakeyrat said:

    @dhromed said:
    Makes me wonder how tumblr is funding itself. There's absolutely nothing there in the form of ads.

    They save a lot of money having the site constantly broken.

    THIS!

     

    I looked up tumblr's about page, and while tumblr itself seems to be filled with enthusiastic hipster enchanted unicorn rainbow people (which is ok, because tumblr is pretty good), I also looked up their investor's pages, and I can only conclude that the money magically appears out of nowhere.

    I mean really, investors are people like Martín Varsavsky. From his Wikipedia page, I can only conclude this man interacts with the world at large as if it were some giant SimCity session.

     

     


Log in to reply
 

Looks like your connection to What the Daily WTF? was lost, please wait while we try to reconnect.