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P-O'd At IPO's or 'Why the Nanosys IPO now would have been bad for Nanotech'By Pearl Chin - Managing General Partner, Seraphima Ventures |
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Many were upset when Nanosys withdrew their IPO in early August 2004 after announcing their IPO end of April 2004, least of all CEO Larry Bock. However, it remains clear that market conditions were not ready for an IPO of a company at that stage of progress. Nanosys was without actual product and sales and did not promise them any time soon. Many consider Nanosys the poster child of successful nanotechnology startup companies. However, there are many other nanotechnology startups, some with similar business models and some even with sales revenues that may have just as good technology and potential but not as good press.
The market was and still is P-O'd at IPO's for companies without real product and sales revenues. This was because the market was too soon out of an economic downturn due to overvalued dot.com and biotech companies, some of which spent money like there was no tomorrow, and some of which also did not have real sales yet. The aftermath of those bubbles bursting was exacerbated by the 9-11 tragedy. Only a few of those companies such as Yahoo actually succeeded while the rest fell by the wayside as casualties of dot.com and biotech.
Nanosys would not have seen any revenues soon after this IPO. If Nanosys had succeeded in going IPO, its stock price would have dropped significantly soon afterwards. There would have been many a disappointed public shareholder feeling they had been had and selling off their shares a year into ownership. Public shareholders have much shorter-term investment horizons and shortsighted views these days in terms of making money from stock of publicly held companies. The public is less risk adverse than angels and VC's. The only people who would have made any money on the IPO were the early VC investors selling off their shares at the IPO.
As Nanosys was being positioned as the great nanotech hope that would pave the way for nanotechology's legitimacy on Wall Street, Nanosys' failure on the stock market would have burst a perceived nanotech bubble. The problem here for nanotechnology and companies in this space is bad news travels fast and goes away even slower. This would have poisoned the market mentality for any other upcoming and perhaps more promising and better positioned nanotech companies that should be going public in an IPO or for other nanotech startup companies trying to raise funding for the next few years. Nanosys would have left a bad taste in the mouth of the public for future nanotech deals. It would then become even more difficult than it was lately to raise the most simplest of funding for any other nanotech startup. Timing is just as important in the startup world and having to wait another few years for appropriate funding could kill many companies with potentially disruptive technology. With the withdrawal of the Nanosys IPO, the hype bubble then deflated to the more reasonable and manageable proportions of the fledgling industry that it is.
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Dr. Pearl Chin has an MBA from Cornell, a Ph.D. in Materials Science and Engineering from University of Delaware's Center for Composite Materials and B.E. in Chemical Engineering from The Cooper Union.
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This is another monthly column contributed by Dr. Chin to Nanotechnology Now. The full article appears in our October 2004 Premium Newsletter, along with other outstanding pieces by leaders in the field.
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