Brad Feld

Month: April 2008

Today’s NY Times has a clearly written article describing what’s really going on with Auction Rate Securities titled It’s a Long, Cold, Cashless Siege.  There’s a lot of confusion going around about what ARS are and how they work so it’s nice to finally see "the simple stories" appearing.  If you are curious about how these things really work or if you are interested in another straightforward story, Fred Wilson has one of the best first person accounts up on his blog titled Our Run In With Auction Rates And What It Taught Me About Markets.

When the auctions first started failing a few months ago, a close friend mentioned to me that he had most of his liquid cash tied up in ARS.  For him, it was a good news / bad news story as he needed access to the cash, but was able to borrow against it at a much lower interest rate that his ARS reset to (in almost all cases, if the auctions fail, the interest rates get reset higher – sometimes much higher.)  So – while he’s now borrowing against his own money (er … ok) he’s at least making some points on the spread.

I hadn’t ever heard of ARS so I sent a note to the firm that manages my bond portfolio and asked "do we have any ARS."  It turns out that we only had one – a Denver International Airport bond that reset to an interest rate 150% higher than it was previously paying.  The amount of cash tied up didn’t impact me so I was / am perfectly happy to get the higher interest rate while the bond is illiquid.

A couple of days later I got a note from Silicon Valley Bank – where a number of our portfolio companies bank – announcing that they don’t have any auction rate security exposure with any of their clients.  It hadn’t occurred to me that our portfolio companies might have any of their money tied up with ARS since our default investment policy for portfolio companies is "keep your money in 100% liquid things like money market and treasuries."  So I sent out a note to a couple of banks to check.  Simultaneously, I heard from one of our companies (not one that I was on the board of) that they did have a bunch of their money in ARS’s.  This prompted me to dig in a little deeper, especially with that particular bank.

Since most of the companies I’m on the board of bank at either SVB or Square 1, my investigation was easy.  Square 1 – like SVB – has no ARS exposure so all of those companies were fine.  I had one company that banked at the same place that our other portfolio company did (which it turns out – had half of their cash tied up in an ARS – unbeknownst to them since the bank has provided it as part of the "as safe as cash" investment opportunities.)  A couple of days and several emails and a phone call later, I determined that (a) the company I was on the board of had no exposure, and (b) the bank was trying hard to convince people that there was no issue, yet they were doing it by dodging the direct question until you asked them verbally.

In the middle of all of this, a TechCrunch article came out titled 20% Of Valley Startups Can’t Get To Their CashWhile this alarmed me at first, it didn’t tie with the results of my investigation into our portfolio.  Either my companies are all brilliant at cash management (unlikely), I’m incredibly lucky (possibly), or most of our companies bank with folks that didn’t get tangled up in ARSs (true – SVB and Square 1.)

My personal cash in the ARS is still in it (the auction hasn’t restarted) and I’m happily getting 150% of the interest payment I was getting before.  The bond doesn’t come due until 2010 (and I usually hold individual bonds through to maturity) so check back in a couple of years to see if this has worked its way through the system. 


With the sudden and ubiquitous emergence of PaaS (Platform-as-a-Service), I thought I’d investigate several other "aaSes" as I always thought PaaS was something VC’s did.

  • BaaS: This is a fish.
  • CaaS: Commission on Accreditation of Ambulance Services (or the Chet Atkins Appreciation Society)
  • DaaS: Dogs-as-a-Service.  Also known as Dogster.
  • EaaS: Elephants-as-a-Service.  Also known as The Nature Channel.
  • FaaS: How I generally drive my SL 55.
  • GaaS: New pricing model.  Unlimited supply for $4 / hour.
  • HaaS: Hardware-as-a-Service.  This what Amazon really sells.
  • IaaS: Infrastructure-as-a-Service.  It’s in Wikipedia, so it must be true.
  • JaaS: Java Authentication and Authorization Service.
  • KaaS: The fat singer in the Mamas &the Papas.
  • LaaS: A Mango flavored Indian drink; Local Area Augmentation Service.
  • MaaS: Catholics-as-a-Service.  This is also Evangelicals 2.0.
  • NaaS: Birds-as-a-Service (Northern Arizona Audubon Society).
  • OaaS: Porn 2.0 – use your imagination or try xtube if you don’t know what I’m talking about.
  • QaaS: A little known country in the UAE.
  • RaaS: 17 different things – mostly systems of some sort.
  • TaaS: The guys and gals that write the stories for the official news agency of Russia.
  • UaaS: This domain for sale for $4675.  Invent your own aaS.
  • VaaS: Warnakulasuriya Patabendige Ushantha Joseph Chaminda Vaas.
  • WaaS: Weekend-as-a-Service.  This is what keeps me sane.
  • XaaS: X-as-a-Service.  Coined by Scott Maxwell of OpenView in 2006.
  • YaaS: What Yahoo is going to be called after the Microsoft acquisition (or maybe they will be "Yahoo Cloud Computing SP74").
  • ZaaS: The giant tree that eats dust mites containing planets in Dr. Seuss books.

It all started with SaaS which those of us in the know refer to as ASP 2.0.  My heart beats quickly for the days of "hosting", "ASPs", and "On Demand."  Shoot – I even miss eSomething.  Fortunately, Cloud Computing will enable lots of TLA’s for us to enjoy.


As I sit here in the San Francisco International Airport (they announce that so proudly over the PA when they tell me that the thread condition is orange every few minutes) I’ve been pondering the unexpected Frontier Airlines bankruptcy.  My Frontier flight is now an hour late so I’ve had plenty of time to surf the web and try to figure out how / why this happened so suddenly.  I’m also almost brain dead from my 10 day trip so it’s hard to actually do anything productive at this point.

I’ve determined that the bankruptcy filing is simultaneously a smart survival move for Frontier and an example of the classic "unintended consequences" (which my dad also taught me result from "complicated mistakes.")  This one is a doozy.  I have no idea what the actual facts are, but the WSJ asserts that the Chapter 11 filing by Frontier was in response to their credit card processor (First Data) increasing they amount and length of time of their holdbacks for credit card receipts.

Let me get this straight. I’m a customer.  I charge a Frontier ticket on my credit card.  First Data processes it but now holds the money until they decide to release it to Frontier.  As a result, First Data effectively controls Frontier’s cash flow (since almost all customer purchases are made on credit cards.)  All right, I got it.

In one of the articles I read, it was stated that First Data increased the holdback percentage from 45% to 100% and the time duration until "the flight was taken."  That strikes me as completely unreasonable on First Data’s part – they now control the float from the moment of purchase until the moment of flight completion confirmation (which I expect is a non-trival reporting process for Frontier.)

Frontier’s response – "Dear First Data: Bullshit.  We are filing for Chapter 11 and invalidate your ability to change the holdback terms.  See you in bankruptcy court."

All the chatter I heard today while waiting for my plane was whether Frontier would be going out of business and whether our plane would arrive.  The fact that is was an hour late didn’t help.  Nor did the fact that the electronic scoreboard announcing the flight time was not working and the gate agent wrote all the info on a piece of paper taped to the wall.  Everyone at Frontier is keeping their chins up and saying "no problem – this is just a technicality."

Hopefully I’ll get home today.  As one of my twitter friends told me – "at least I’m not on American Airlines."


I was going to respond to Fred’s post We Need A New Path To Liquidity in between my elephant meeting and my rocket ship meeting but I ended up reading all the comments as well as a bunch of the linked blogs (via TechMeme.)  As a result I’ve run out of time.  The comments are fascinating, as are some of the linked blogs.  Well worth a deep read.


Fred Wilson has an incredible post up this morning titled We Need A New Path To Liquidity.  I don’t agree with everything in it, but it’s a great, heartfelt post in the context of the gigantic Internet elephants stomping around trying to reconfigure themselves and consolidate things while accidentally crushing all the pretty little toys gathered at their feet trying to get (or having gotten) their attention.

I’m rushing off to go spend the morning with a bunch of my friends at one of the elephants so I don’t have time for a more thoughtful post – go read Fred’s to get a starting point for the discussion and I’ll try to join in later today.


I spend plenty of time making connections between people.  Email has certainly made this a lot easier.  One of my best friends – Warren Katz (the founder / CEO of Mak Technologies) recently send me some prehistoric emails that he had saved from me demonstrating that even when I was in my mid 20’s, I was using email to connect people.  Note the Compuserve email address – can you remember your Compuserve (or Source) address?  And yes – the Compuserve address bounces now.

Subject: Scott Instruments
Date: 10 Sep 92 17:38:38 EDT
From: Bradley Feld <
75170.1206@CompuServe.COM>
To: Warren Katz

Warren,

I sent a letter to a company in Denton, TX called Scott Instruments and suggested they give you a call. This is a company that was co-founded by my first "business mentor" — a guy named Gene Scott. They are a voice recognition company that is based on technology developed by Gene’s son Brian (Brian is VP of R&D). They are a small company (20 or so people) that are primarily in the technology development and licensing business. They have deals with a number of companies, including Silicon Graphics.

I met with them last week when I was in Dallas. Their current CEO is a guy named Marvin Preston who also has his own business working with developing technology companies (Scott Instruments is his current client). He’s a super neat guy, and lives in Princeton, NJ (and has a daughter at MIT). I thought you might benefit by being hooked up with these guys in some way. When I mentioned virtual reality, everyone’s eyes lit up. I’ll send over a copy of their marketing stuff for you.

… Bradley


Will Herman reminded me that Speed Racer the movie is arriving on the scene on May 9th.  Speed Racer is the cartoon of my childhood.  A few years ago I bought all the episodes on DVD and watched them one after the other one weekend until my head exploded.  I used to be so hot for Trixie and Racer X was like the big brother I never had.  I can’t wait for the movie.  I am so pleased that the Wachowski Brothers created it.


My mom just hung a new exhibit of her photographs titled Japan and India: Faces and Places.

image

The images are spectacular – take a look at the slide show if you have any interest.  The show is up at the Mesquite Art Center, 1527 N. Galloway, Mesquite, Texas (972-216-6444) until May 3.  Congrats Mom on a beautiful looking show.


Return Path has 50 open positions in Colorado, New York, and Europe.  The specific job page has detailed descriptions – all applications / resumes go to jobs@returnpath.net.  Who said email is dead?