Death By Finance
from the pawnshops-for-dot-coms dept
A very interesting article about the horrible deals many tech firms are taking as a last ditch effort to stay alive. Variously called “death spiral investments”, “toxic converts” or “pawnshops for dot coms” they involve a form of a PIPE (private investment in a public company) where the investor gets a definite monetary return in stock on their investment. One of the examples is a $17 million investment where the investor is guaranteed $19 million out, no matter what the stock price is. If the stock drops far enough, the investors can own the whole company. Where it gets worse is that many investors make these deals and then short the stock driving the price even lower. Some companies agree to these deals as a last ditch effort (though some, such as Pets.com prefer to shut down then accept such a deal). Some people are fighting back against these toxic converts and feel that they’re hurting other investors.