Worthwhile musing about the effect of so much convertible debt in startup land:
Both startups and angels have recently favored convertible debt, particularly in the United States. Startups like debt deals because they are quick and cheap to close by avoiding price negotiations for equity. Angels like debt because it is the most senior security in a company. Estimates are that there are now 10,000 angel financings per year, and as much as 70% of these deals are now convertible debt. The majority of convertible debt deals have no mechanism to convert to equity without the occurrence of a Series A, and standard convertible debt deals come due in 12 to 18 months.
Here is the problem. The number of seed-stage Series A deals led by venture capitalists have fallen from 400 in 2007 to 241 in 2010, and it’s declining further. Series A deals for any type of early-stage company declined from a total of 961 to 741 first-time financings in the same time (NVCA). Billions of dollars of angel debt across thousands of investments is coming due in 2011 and 2012 without any ability to be repaid or any prospect of conversion. The numbers are hard to come by for angel deals, so a lot of this is based on macro-trends and conversations with attorneys and startups, but maybe 5% of convertible debt will experience a proper conversion event.
This is a serious *potential* problem for startups. First, startups with large debts on their balance sheet will have challenges securing loans, partnerships and vendor credit, impeding their growth. Second, it will be nearly impossible for a startup with outstanding senior debt to secure additional angel financing, which is the most likely source of capital today due to the decline in venture. Third, it only takes one or two jittery angels to call their note on maturity, rather than re-negotiate, and bankrupt the startup, even if the startup is doing fine. If one jittery angel pulls out of 10 deals at once, a chain reaction is possible, and there are many more angels than ever before with varying levels of sophistication.
Not sure how well this will translate outside the live evening audience at TED, but one of the biggest surprises to me at this year’s event was how much I enjoyed Sarah Kay’s spoken word poetry. Apropos of nothing, I sat beside Sarah for one of the early sessions at TED U and didn’t know who she was. In her favor, I hadn’t had breakfast and she offered food.
Rosencrantz: [Rosencrantz and Guildenstern are about to be hanged] That’s it then, is it? We’ve done nothing wrong. We didn’t harm anybody, did we?
Guildenstern: I can’t remember.
Rosencrantz: All right, then. I don’t care. I’ve had enough. To tell you the truth, I’m relieved.
Guildenstern: There must have been a moment at the beginning, where we could have said no. Somehow we missed it. Well, we’ll know better next time.
— Rosencrantz & Guildenstern Are Dead (1990)
Incredible video of liquefaction and cracking from the Sendai earthquake:
Good comments in Bulletin of Atomic Scientists on risk, Japan’s accident and system coupling:
We have now had four grave nuclear reactor accidents: Windscale in Britain in 1957 (the one that is never mentioned), Three Mile Island in the United States in 1979, Chernobyl in the Soviet Union in 1986, and now Fukushima. Each accident was unique, and each was supposed to be impossible. Nuclear engineers have learned from each accident how to improve reactor design so as to diminish the likelihood of that particular accident repeating itself but, as Donald Rumsfeld famously reminded us, there are always “unknown unknowns,” and so each accident has been succeeded by another, unwinding in a way that was not foreseen. The designers of the reactors at Fukushima did not anticipate that the tsunami generated by an earthquake would disable the backup systems that were supposed to stabilize the reactor after the earthquake.
And presumably there are other complicated technological scenarios that we have not foreseen, earthquake faults that are undetected or underestimated, and terrorists hatching plans for mayhem as yet unknown. Not to mention regulators who place too much trust in those they regulate.
Thus it is hard to resist the conclusion reached by sociologist Charles Perrow in his book Normal Accidents: Living with High-Risk Technologies: Nuclear reactors are such inherently complex, tightly coupled systems that, in rare, emergency situations, cascading interactions will unfold very rapidly in such a way that human operators will be unable to predict and master them. To this anthropologist, then, the lesson of Fukushima is not that we now know what we need to know to design the perfectly safe reactor, but that the perfectly safe reactor is always just around the corner. It is technoscientific hubris to think otherwise.
- The lessons of Fukushima (Source)
- Sushi Restaurants Drop Japanese Fish From Menus as Radiation Concerns Grow (Source)
- Centre for Food Safety – Nuclear Event and Food Safety (Source)
- Don’t Know Squared: “It’s What You Don’t Know You… (Source)
- Spring Flooding Underway, Expected to Worsen through April (Source)
- An explosive mix: Uncertain geologic knowledge and hazardous technologies (Source)
New BusinessWeek cover is striking. Click for the story.
Cheapest tickets at London Olympics? Badminton. Hey, I love badminton.
Good VF piece on the disturbing Stuxnet cyber virus:
Last summer, the world’s top software-security experts were panicked by the discovery of a drone-like computer virus, radically different from and far more sophisticated than any they’d seen. The race was on to figure out its payload, its purpose, and who was behind it. As the world now knows, the Stuxnet worm appears to have attacked Iran’s nuclear program. And, as Michael Joseph Gross reports, while its source remains something of a mystery, Stuxnet is the new face of 21st-century warfare: invisible, anonymous, and devastating.
Read it here.