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Opinion: This Is The Best Big Short For When The Silicon Valley Bubble Pops

Opinion: This Is The Best Big Short For When The Silicon Valley Bubble Pops

a complete recapitalization that wipes out previous shareholders (founder, employees, and investors alike). So, while it may seem innocuous to take such a round, and while it will solve your short term emotional biases and concerns, you may be putting your whole company in a much riskier position without even knowing it.

Some later-stage investors may be tempted to become sharks themselves and start including structured terms into their own term sheets. Following through and succeeding at such a strategy will require these investors to truly embrace being a shark. They will need to be comfortable knowing that they are adverse to and in conflict with the founders, employees, and other investors on the capitalization chart. And they will need to be content knowing that they can win while others lose. This is not for the faint of heart, and certainly is not consistent with the typical investor behavior of the past several years.

Why you need to know about dirty terms

So why are the dirty terms important in evaluating the stock of Silicon Valley Bank? The $1 trillion of unprofitable and funny paper in private tech is rapidly becoming subprime, with dirty terms and valuations going the wrong way. The capital slushing around has to find a home so you are seeing more capital to go to weak ideas and weaker entrepreneurs. You have more and more celebrities becoming VCs and angel investors. It’s not to the point where the strawberry picker is buying a $400,000 house in California without documentation, but folks we have a massive problem brewing.

The IPO and M&A markets are not strong enough or dumb enough to pay for the dirty, misleading, and sometimes fraudulent valuations and the bubble music is about to stop. The bubble music is already being turned down in volume but this is not reflected in Silicon Valley Bank’s stock. Not yet.

Investors and traders would be wise to identify who has the most exposure to this increasingly dirty subprime sector before it completely falls apart.

Whether it’s the unprofitable Nasdaq tech stocks of 2000, subprime mortgages in 2008, or the $1 trillion in subprime private tech paper today, when the bigger fool can’t be found anymore, the market can turn fast and it turns into a vicious cycle that the experts say they could never have predicted.

Late in the game, some elite U.S. VC investors are now desperately trying to cash out with Asian or Middle East investors, who may end up being the johnny-come-lately German subprime buyers of the next tech crash.