Just before the holidays, the New York Times published an article that suggested nanotech companies would start going public with greater regularity soon.
The tacit message of the article is that somehow all that unwarranted promise of instant riches from nanotechnology in the early 2000s were somehow finally going to be realizedâ'¿real soon...as more nanotech start-ups go public.
My question is: Why is going public a good thing? Or even a desired outcome? Going public does not necessarily indicate the health of the commercial markets for nanotechnology or a company. At least thatâ''s my understanding with my capital-markets-101 grasp of market funding.
The stories of publicly funded nanotechnology companies are not pretty. In fact, Unidym, which is mentioned in the article breathlessly as â''hoping to go public in the near futureâ'', is already a subsidiary of publicly traded nanotechnology company, Arrowhead Research that is trading at less than half of its 52-week high.
Unidym and Arrowheadâ''s other recent acquisition, Carbon Nanotechnologies Inc. (CNI), which was merged into Unidym, are often touted for their â''strong IP position.â'' In fact, this tale of CNI goes back at least five years when it announced $15 million in seed funding and ended with its sale to Unidym this year for $4 million in stockâ''from another start-up company.
The concept of having â''a strong IP positionâ'' is so overriding in the commercial considerations for US nanotechnology companies that they seem to forget that you need to actually have something to sell.
So millions of dollars are plowed into companies based on this â''strong IP positionâ'' concept and more often than not investors end up with the companies burning through the money just trying to develop something they can sell.
In one of the more hyped failures of nanotechnology in the stock market, Nanosys pulled their IPO at the 11th hour due to â''unfavorable market conditions.â''
Nanosys is one of those â''strong IP positionâ'' companies, so I did a little memory lane of their press releases from 2003 to today. The story goes something like this:
â'¢ Announcing a first and second round of venture financing worth $45 million in addition to $14 million in non-equity grants and contracts
â'¢ To where there technology is described as about to change the world with words like â''They have the money, they have the talent. Now itâ''s just about executionâ''
â'¢ To where there IPO is expected to garner between $350 and $370 million for a company with revenues of $3 million based solely on contract research rather than any product
â'¢ To where there IPO is pulled because it canâ''t get a decent price for the stock
â'¢ To where it raises another $40 million after pulling its IPO and has not attempted an IPO since
On the other hand, you have a privately held company such as Nano-Tex (51% share owned by Burlington Industries) that goes from one success to the next over the same period.
The difference: one company is selling a product and the other has a â''strong IP position.â'' Which one are you going to buy?