Early investors in a tech startup only make their money back when more money is invested into the startup during later investment rounds. Isn't that how Ponzi schemes work?
Pyramid schemes, or rather Ponzi schemes as they are sometimes widely referred to, are mostly a confidence trick and investment scam that involves promising higher than normal returns on the money a person invests. The only risk typically is the money invested and little else, with a not so clear business model as to how the “scheme” actually generates value and profits.
The key part of a Ponzi scheme (named after the Italian conman, Charles Ponzi) is making sure that early investors in the scheme are paid (at the returns promised, or exceeding them) using the money that later investors pumped into the scheme. This part is what entices more people to invest in the Ponzi scheme as there is “proof” that it works and pays out the returns on investment as promised. Before long, once the founder of the scheme and his collaborators feel there is enough money invested in the scheme, they make a run for it with “investors” money.
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