Forum OpenACS Q&A: What happened?

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1: What happened?
Posted by John Milazzo on 06/21/01 10:24 PM
No luck trying to reach the aD site today. Anyone know what happened? Did things finally come to an end between aD and Philip?
A message on his site says they've called it quits. Truly a sad day.
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2: Response to What happened? (response to 1)
Posted by Jamie Ross on 06/21/01 11:38 PM
No idea other than speculation based on the message posted by Philip.  I would guess Philip and Jin etc received a substantial cash payout in return for basically getting out of the management of aD and removing all critical postings etc.  So I would suspect that they have permanetly parted ways but since the terms of the setllement are secret, this is all PURE guesswork on my part.
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3: Response to What happened? (response to 1)
Posted by Robert Ezman on 06/22/01 01:24 AM
The litigation story that Philip originally put up has been replaced with a note (http://philip.greenspun.com/arsdigita/litigation-story) describing a settlement. It's kind of short and to the point...thus the comment regarding lack of use of html tags in the above link.
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4: Response to What happened? (response to 1)
Posted by Todd Gillespie on 06/22/01 05:15 AM
Someone set them up the bomb?

arsdigita.com is accessible again. I also was unable to reach it earlier today. Their uptime seems to have gotten worse in recent weeks, but perhaps it's in the network. DSL companies, for instance, aren't doing so well on uptime lately..

Jamie, and others of similar mindset: I have to think your speculation is rather optimistic. Philip owned 60% shares in a company with $20M annual revenues. Given a 10 P to E ratio, those shares would have a face value of $120M, which is considerably more than the $38M the VC invested. To step out onto a limb, I would suppose that the VCs wouldn't want to spend more than the round 2 financing and Philip wouldn't be interested in the small fraction of the value of his shares. So I'd have to assume that he was 0wned in court; the judge must have decided that investor rights trump shareholder rights, or the case was tending in that direction and Philip settled at some small fraction of his share's worth.

Taking an alternate tack, nowhere in Philip's message does he proclaim a divestment of his shares, just that he will "exercise no ongoing ... stockholder control." Which is, IMHO, an equally bad deal, given that he is majority stockholder. What kind of fair agreement gives a person no voice in their property?

I have some remaining questions, though. Was a ruling made? If so, is the ruling confidential? Can it be used as precedence in future cases wherein investors seek to strip all rights from shareholders? Am I reading too much into this?

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5: Response to What happened? (response to 1)
Posted by Adam Farkas on 06/22/01 05:45 AM
I know zippo about what's going on with aD, but --

Just a minor correction for Todd -- when doing P/E analysis, it's important that a company have (E)arnings. Not to be confused with revenue. Companies running at a loss don't.

That's what made internet valuations during the bubble even stupider -- people were focusing on revenue generation (as a proxy for market dominance, and therefore value, i guess??), instead of earnings.

Now that the markets have come to their senses, and people are questioning sketchy earnings reports even from companies that _do_ make money (http://news.cnet.com/news/0-1007-200-6318759.html), attempting to figure out the value of a venture-backed, but private internet startup that's still burning cash has become an exercise in pain for existing shareholders.

Companies that received their funding at the height of the bubble and now need to go back for more cash are finding their valuations slashed.

This means that for a given amount of new $$$ invested, the existing owners will have to give up a greater % ownership of the firm. Existing owners get "diluted".

In VC parlance, this is called a "down round", and is good for new investors who can invest at firesale prices. It's very, very bad for existing owners, or people who are trying to sell their shares. (http://biz.yahoo.com/bizwk/010501/8tx1fo4d6cz93wm2gikhfw.html)

So, I can't say what's going on specifically at aD with respect to valuation, but I can't imagine that they are immune to the shifting fortunes of the marketplace. [After doing some VC work for the past couple of months, I can tell you that it's getting pretty ugly out here.]

The bottom line is that the valuation of a private firm is always a negotiation between buyer and seller; there's no cut-and-dry number. So i wouldn't even try to speculate on what's happened at aD.

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6: Response to What happened? (response to 1)
Posted by Kevin Scaldeferri on 06/23/01 12:34 AM
Todd, there was a settlement, not a ruling.  I.e. the case was not decided in court and there is no legal precedence set (or modified).  Unlike a court ruling, which is a matter of public record, this is an agreement between private parties.  As the official blurb says, part of the settlement is a confidentiality clause, which apparently says everyone involved can only parrot that paragraph.
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7: Response to What happened? (response to 1)
Posted by S. Y. on 06/23/01 03:21 AM
...when doing P/E analysis, it's important that a company have (E)arnings. Not to be confused with revenue. Companies running at a loss don't.

An example of a publicly-traded company that has substantial revenue that isn't making money is Amazon.com (NASDAQ: AMZN). Their per-share data for the trailing twelve months: $8.15 sales, -$3.75 earnings, -$3.49 book value. That means Amazon is spending money faster than they make it. Therefore, there's a "N/A" next to the P/E ratio.

Amazon's debt is probably junk status. I believe that accounting practices benefits them concerning some of their investments (they hold equity stakes in many of their partners). One of the unusual features of Amazon's financials is their negative book value.

Contrast Amazon.com with Morgan Stanley (MWD), IBM, Chevron (CHV), or Ford (F). The latter four actually make money and pay their shareholders dividends and only MWD did not outperform the S&P 500 in the last twelve months.

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8: Response to What happened? (response to 1)
Posted by Adam Farkas on 06/23/01 03:32 AM
Sean says: "Amazon's debt is probably junk status. "

When last I checked, their rating = CCC = Junk.

I don't think their cash reserves will hold out. Run for your life.

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9: Response to What happened? (response to 1)
Posted by S. Y. on 06/24/01 04:26 AM

Adam says: "Run for your life."

You're not alone. About 36% of the float has been shorted. Not a resounding vote of confidence from the investment community.

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10: Response to What happened? (response to 1)
Posted by Todd Gillespie on 06/25/01 09:34 AM
Adam, Kevin, and Sean, thank you for filling some gaping holes in my financial and legal training. Quite a few things with aD have become apparent and feasible...

Kevin, I know that it was a settlement, not a ruling, but I did not know whether it was precipitated by a ruling. There are some people in this forum who were following the court documents closely; I was hoping to hear from them. Presumably court rulings are public; but you might want to check -- building codes are state & municipal law, therefore public documents, right? Nope. They are copyrighted by the contracter lobbyist groups that wrote them. There was a case on this recently (someone posted the building codes on the web), and the judge ruled that the law could be, and was, copyrighted. That, and counting the number of documents of evidence that were sealed at recent EFF-sponsored trials I've been following, have not assured me that the public will be told of any and all legal decisions....