June 8, 2014

E-commerce giants are Ponzi Financed!

I came across this term, 'Ponzi finance' today morning. A very scamming scheme of things, which works as follows :
1. A person or a firm rolls out an investment scheme.  investors get paid when new investors sign up.
2. No guarantee on capital.
3. Eg. If you invest Rs. 10, you will get paid Rs. 15 as 5 new investors sign up.

where past & current investors are guaranteed returns/payouts in the scenario that the firm can get new investors in the future.
& that is exactly what is happening in the world of Ecommerce these days.
Even the likes of Flipkart & Jabong. (I will exclude Amazon from this discussion because it is making profits)
Flipkart & Jabong are both huge Ecommerce companies in India & both have turned profitable & are still in business just because investors & new investments are covering their losses. Which is almost the definition of a classic Ponzi scheme. Almost, because here the investors are not guaranteed a return, they know that they may never get a return in case the companies do not go public or they are not acquired. That is the gamble here.
But it is really surprising how the Ecommerce giants are financed, it almost sounds like a sham.

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