20% Of Valley Startups Can’t Get To Their Cash

http://www.techcrunch.com/2008/03/11/20-of-valley-startups-cant-get-to-their-cash/

by jmorin007 • 18 years ago

31 11 18 years ago

mercurio• 18 years ago

A couple of days ago, Fred Wilson made a relevant post about his near escape from the auction rate bond market. Its an interesting read, with more detail on how these bonds usually function and how the recent malfunction developed. From what I understood, these bonds don't lose all their liquidity overnight. After they lose their "primary" liquidity (by failing an auction), there is a secondary market that kicks in because of the high interest rates that the bonds are contractually required to offer once they fail an auction.

Fred says he got a call from his broker saying "your bonds have not yet failed an auction but you should know that the risk of it happening has gone up". I imagine that a lot of startups must have got a similar call, but perhaps the founders were too focused elsewhere to pay attention. Or maybe the smart ones did listen and were able to avoid this sorry mess.

http://avc.blogs.com/a_vc/2008/03/our-run-in-with.html

rhiltd• 18 years ago

Why on Earth would ANY startup want to play "Treasury" like a large corporation? Using the KISS Principle an 'normal' bank account is much better. We all have better things to worry about than an extra 1% return on 'cash'.

As Warren Buffet says, if you don't understand it not invest in it.

motoko• 18 years ago

Because "the experts" told them to.

One wouldn't want to be "miss out" on "greater returns for 'virtually' no risk" because they were "too stupid or cowardly to understand it..." according to your VC.

tptacek• 18 years ago

The underlying muni's aren't faulting, right? You're losing liquidity, not assets --- why are people taking writedowns on these?

kingnothing• 18 years ago

If you need money and it's all locked up in non-liquid assets, you do what you have to do to stay afloat.

Prrometheus• 18 years ago

You've just described the current crisis in the credit markets. The crisis wasn't so bad when it started with higher-than-expected defaults in subprime credit markets, but people are panicking a lot more now that liquidity is drying up for high-quality assets. Many firms' business models are based around having access to sufficient liquidity, they aren't built to buy and hold.

mattmaroon• 18 years ago

This is why I put our company's savings into potatoes.

rms• 18 years ago

from the comments:

# Michael Arrington

March 11th, 2008 at 9:10 am

one VC, speaking off record, said that some of their portfolio companies would likely fail because of this. When I asked him why he wouldn’t loan the companies money, he said that perhaps they wouldn’t make the investment decision again given where the companies have gone, and that the fact that there are other VCs investing makes it hard/impossible to figure out who should pay how much.

translation: they are on their own.

20% Of Valley Startups Can’t Get To Their Cash

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