Auction-Rate Troubles Hit Silicon Valley Startups

Private companies hurting for cash
By Laila Weir,  Newser User
Posted Mar 14, 2008 10:46 AM CDT
JetBlue planes wait at terminal gates at New York's John F. Kennedy International Airport in this Feb. 16, 2007 file photo. JetBlue has been hit by troubles with auction-rate securities.   (AP Photo)
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(Newser) – A freeze in the market for a type of securities known as auction-rate securities may cause big cash-flow problems for many Silicon Valley startups. A number of private companies have large chunks of cash tied up in the securities, reports the Wall Street Journal. Now, buyers have dried up and they may have to sell at a big loss, if at all.

The securities have already led to problems at big, publicly traded companies, including JetBlue, and Valley insiders say the difficulties will hit private startups harder. "The private companies need liquidity more, because they're burning cash faster than public companies," said one lawyer. Investment banks marketed the securities as very safe investments that were practically cash equivalents.