Wall Street's crunch is now spilling into the world of Silicon Valley start-ups.
Many of these closely held companies, already smarting from dwindling opportunities to go public and a souring economy, are stuck holding illiquid debt instruments called auction-rate securities. These obscure securities already have caused financial headaches for big publicly traded companies like JetBlue Airways Corp. and Bristol-Myers Squibb Co., the closed-end mutual-fund industry and even some hospitals and schools.
The instruments were marketed as extremely safe investments, nearly the equivalent of cash. But now, amid wider credit-market worries, the $330 billion market for the securities has seized up, making it hard for holders to convert them to cash. And the mess will hit many start-ups harder than other companies and institutions holding the instruments, lawyers and investors say.