The Repudiation Phase of the Bubble

I’ve read many books on the history of financial markets (like more than four dozen) over the last 20 years. I eat, sleep and breathe this stuff. One of the common threads of every financial or asset bubble throughout human history is that they all have a repudiation phase – a moment where all the lies that had been built up alongside the excess are aired out in public. Even reputable companies and players get caught up in it.

As Jeff Lebowski said, “New shit has come to light, man.” In the repudiation phase, belief is nowhere to be found. Skepticism becomes the order of the day.

We’re there now. New shit is coming to light every five minutes. Every reputation you thought was untouchable and every omission you’d accepted because it was already accepted by the crowd – all back on the table for discussion (dissection?).

Witness the brick-by-brick dismantling of the Theranos mythology – the latest chunk of debris chipped from the edifice here:

The Secret Culprit in the Theranos Mess (Vanity Fair) 

…or the outing of Zenefits, would-be destroyer of the health insurance underwriting biz, as a rogue entity cheating on licensing exams:

Zenefits Co-Founder Sold Stock Months Before Scandal (Buzzfeed) 

…and the magnifying glass now being taken to startup valuations; the way in which public investors are inventing their own prices:

This Hedge Fund Has Bizarrely High Valuations on Dropbox and Other Unicorns (Fortune) 

There will be more of this sort of forced unveiling. The grand facade, so soon will burn. It was fun for awhile, though.

I’d argue this is healthy for the startups that were actually built for a purpose other than selling stock. There are many of them. Their ownership will revert to professionals and employees. Neophyte interest is declining for just about anything that isn’t called Uber (and stay tuned on that one). Real VCs ought to be glad, even if 2016 is a bust.

Skepticism is a force for good, not evil. Incredulousness is even better.

In the repudiation phase, every question will include a follow-up question. Saying “proprietary” won’t stop further inquiries from investors and the media. It’s not exactly “knives out”, but there won’t be any more parades or “automatics”. Nothing taken on faith or pedigree. These were the guys who backed _____ will no longer be enough to get checks written and multiples boiling over.


Umberto Eco, channeling himself through the protagonist of Foucault’s Pendulum:

“I believe that what we become depends on what our fathers teach us at odd moments, when they aren’t trying to teach us. We are formed by little scraps of wisdom. When I was ten, I asked my parents to subscribe to a weekly magazine that was publishing comic-strip versions of the great classics of literature. My father, not because he was stingy, but because he was suspicious of comic strips, tried to beg off. “The purpose of this magazine,” I pontificated, quoting the ad, “is to educate the reader in an entertaining way.” “The purpose of your magazine,” my father replied without looking up from his paper, “is the purpose of every magazine: to sell as many copies as it can.”

That day, I began to be incredulous. Or, rather, I regretted having been credulous. I regretted having allowed myself to be borne away by a passion of the mind. Such is credulity.”

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