[Quizzy]

It is when you need new sales to pay for the cost of maintaining existing client base: 1) client #1 pays you, but you have to give him back half at a future date, 2) while his money sits in your account, you spend it on operating costs, 3) get new client money in order to pay client #1 back.

It is that money sitting in the account that gives Groupon the cash flow it needs to hire more sales people to grow the revenues further, but remember always that a % of that must be returned to the customer at a future date. Where it falls apart is when your new sales can no longer replenish the client account (no it does not sit in a trust or escrow, but in company's general operating account).

So what happens when Groupon declares Bankruptcy? All that money sitting in the account is gone, customers get NOTHING back. Yes, this is indeed a Ponzi scheme because the last customers in get nothing, even though they are owed the %.