This article first appeared in Term Sheet, Fortune’s newsletter about deals and dealmakers. Sign up here.
Several years ago, I analyzed how hard it would be for an investor to short the startup market. I concluded, in short: It’s really hard.
Nonetheless, shorting startups has looked increasingly appealing over the last month, as Silicon Valley’s biggest, most valuable startup has faced a never-ending string of scandals. Efforts to figure out how to create a market for shorting Uber and its unicorn peers have become increasingly serious. Financial trading startup Mirror worked on it for a year. The company concluded it was too hard:
And though we have in fact made it possible to do so, there are so many structural obstacles to overcome, that long-term success — measured by market scalability — becomes highly unlikely.
The efforts add to a growing anxiety in startup-land, caused by the Uber drama, combined with Snap’s soft post-IPO performance (or as Fortune’s Shawn Tully called it, “one of Wall Street’s biggest flops”). If Uber goes down, could it tank confidence in the entire market? If a company as hot as Snap could flop, how will others get out the door? Could this entire house of cards collapse?!?!!
Breathe, everybody.
It will not be easy for Uber to fix its many, many issues, especially if CEO Travis Kalanick remains in that role, but investors continue to point me to the scoreboard: Despite #DeleteUber, despite the systemic sexism, despite the Waymo lawsuit, despite the driver video, despite Greyball, Uber just had its best week ever for sales. This mess is disturbing for observers, and a huge distraction for the company, but it hasn’t bothered riders and it hasn’t hurt business.
Meanwhile, Lyft is out shopping a new round of funding with a pitch I can only assume goes something like “Check out our competitor’s dumpster fire!” The issue there is that any investor Lyft is pitching has likely had numerous chances to invest at lower valuations over the years. I have to wonder if a competitor’s month of bad headlines is a compelling enough investment thesis to justify the valuation bump from $5.5 billion to, according to reports, as high as $7 billion.
