Dangerous Shortage of Idiots Threatens Economy!

I came across this in my Instagram feed yesterday and I had two thoughts…

The first thing is, awww man, I love Shark Tank. My kids do too. Why does this dude have to be doing this?

And then I thought about how if a regulated investment company or advisor had posted this ad, it would violate like every securities advertising rule on the books. I don’t know what happens when you click on it, because I didn’t want to have to wash my phone out with vinegar or throw it in the ocean after visiting whatever URL was at the end of this ass-rainbow.

By the way, you could not have invested $50 into Uber ten years ago because the company was raising money from venture capital funds. They weren’t collecting $20 bills in the back of a bowling alley like it’s a Super Bowl pool, but I digress…

I think the bigger takeaway is that everything changed this spring after Uber’s failed IPO. The company immediately garnered a valuation north of $80 billion and then it fell like a stone. This experiment – bringing a company public at a massive valuation that stated in its S-1 filing that there was a chance they’d never earn a profit – produced a mass sentiment shift among savvy investors and retail buyers alike. It was a time’s up moment.

I think had Uber successfully listed and held onto a premium, WeWork would have had no problem. Everyone would have looked past the excesses in its filing, the voraciousness of the founder’s side dealings and the absurdity of all the flowery language. They would have said “Get with the program, these are the companies that are taking over the world!” In the shadow of Uber and Lyft, however, the spirit of this sort of thing faded away and IPO buyers got religion.

AirBnB is the next big unicorn to come out. Unlike Uber and WeWork, they actually have a path toward sustained profitability. The numbers aren’t Disneyland nonsense. The management is serious about running the company. They’re not gouging their shareholders or playing Catch Me If You Can with their board of directors. Depending on where it attempts to open at, I think it’ll be okay.

But then what?

Are there enough idiots left for the rest of the big cash-bleeding private tech darlings to debut? I’m not sure. One thing I can tell you is there’s going to be a lot more scrutiny and questions being asked. Scrutiny and questions don’t lend themselves to IPO bonanzas. They kind of ruin the party, like when a guest figures out the wifi code, commandeers the Sonos and starts playing Springsteen songs.

The Vision Fund – Softbank’s vanity project that has come to be emblematic of the Growth At Any Cost style of investing – may be permanently off the field of play; the Antonio Brown of venture investing. In the short-term, this presents a challenge because there is no longer a huge player setting prices at whatever number gets the deals done. Real VCs will benefit from its benching, though, because now they can invest in a more realistic environment. This could be promising for forward returns as the climate adjusts.

And don’t take this the wrong way, but when startups need money from Instagram scrollers, it’s probably not because they have amazing deals and prefer to bypass the smart money. It’s more likely because the smart money passed. There are exceptions, but I’m speaking generally. If one doesn’t speak generally about finance, it would be impossible to say anything meaningful at all, so bear with me. I respect the work being done by companies like Equity Zen, Angel List, etc to match capital with opportunity. I don’t think presenting fake hypotheticals like giving Uber fifty dollars ten years ago is a necessary marketing scheme.

If the WeWork collapse represents the moment the pendulum stopped swinging away from private market fantasies and back toward realism, I would argue that it’s a good thing for the investor class overall. It’s proof the system is still working. Valuations won’t be the only thing that come into focus. We’ll also revisit voting rights for regular shareholders (remember those?), profitability (or the potential thereof), governance, executive conflicts of interest and all sorts of other quaint stuff that had temporarily fallen out of fashion.

That pendulum’s starting to swing back, don’t forget to duck.


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. h commented on Oct 13

    […] I came across this in my Instagram feed yesterday and I hadtwo thoughts… […]

  2. video transitions premiere pro 2020 commented on Sep 15

    … [Trackback]

    […] Read More on on that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]

  3. black wig commented on Sep 18

    … [Trackback]

    […] Read More on that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]

  4. Is Bitcoin Era a scam? commented on Sep 19

    … [Trackback]

    […] Here you will find 31608 additional Information on that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]

  5. Bitcoin Loophole Review commented on Sep 22

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]

  6. blazing trader review commented on Sep 27

    … [Trackback]

    […] There you will find 51795 additional Info on that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]

  7. 먹튀검증 commented on Nov 07

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]

  8. cats having fun commented on Dec 31

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]

  9. bandar togel commented on Jan 24

    … [Trackback]

    […] There you can find 96923 more Information on that Topic: thereformedbroker.com/2019/10/03/dangerous-shortage-of-idiots-threatens-economy/ […]