DEFINITION OF ‘SHORT SELLING’
The sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.
As VCs, we see see up to a dozen potential deals a day, with one real decision to make: Invest or Pass. In terms of our own actions, it doesn’t really make a difference if a deal just barely misses the mark, or if we think this is the worst deal we’ve come across in years. Either way, it’s a pass. But what if, like the public markets, individuals could sell-short those they felt were extremely overvalued? Perhaps there is another post in the future about whether this would ever be possible, and the ramifications on the industry, but for now I will give my thoughts on which companies I’d bet against – I won’t name specific companies, but rather certain industries/trends. Hope I don’t offend anyone.
- Any “vertically-integrated” e-commerce startup that has raised $2+M before launching a single product to the market. I don’t care if “there’s no dominant brand in the space” or if Red Antler is branding your product, you’re overvalued at a $10M pre-money.
- Any on-demand company that doesn’t add value by actually being, you know, on-demand. Personal trainers, house cleaners, movers, dog walkers, blowouts. Most of these are relationship-based, and you want to schedule the same person to come over and over. The quality of work (or trust in that person) is far more important than getting it within an hour. See: HomeJoy.
- Any startup trying to completely remove the residential real estate broker on sales. It may be feasible on rentals (though nobody has made a big dent yet), but purchasing a home is the single most important buying decision an individual can make, and there will always be a certain amount of handholding necessary. The relationship (and comp structure) may change, but we won’t be living in a broker-less world anytime soon.
- Any startup directly competing with Uber. They are ruthless. Like the genetically modified dinosaur in the new Jurassic Park movie, they will eat/kill you even if they’re not hungry anymore, just for sport.
- Any startup with real technology at its core, that is outsourcing that technology. Seriously, guys?
- Any startup completely reliant on a third-party platform. Sure, it can help you scale very fast. And there may be some big winners here, but there will be a lot of total losses along the way. Perhaps I’ll just short the index here.
- Any startup that needs to get to mass scale just to start earning revenue. These will be the first to collapse if/when there is any market correction, and there won’t be soft landings.
- Any startup w/ a CEO at the helm who has ever lied to us in the fundraising process, or shown a lack of integrity. They’ll sink the company at some point, mark my words.
- Any startup that optimized on valuation over the right partners (no, we are not always the right partner). Not only will they miss out on the value-add of those partners, they will dig themselves a hole for future funding.
- Most single-product Internet-of-Things. They are getting crazy valuations, and taking too long to get to market, and then get real penetration. Most will not make it to a 2nd or 3rd product.
- Most wearables, especially those taking simple notification/tracking technology and making it prettier.
- Almost every new dating app not owned by IAC.
- Any founder that says “There is no direct competitor”. Either you’re completely ignorant, or you’re market is too small for others to want to get involved.