On
April 23rd, 2004, Nanosys announced their plans to raise up
to $115 million in an IPO so that it can further expand its
research across a range of nanotechnology businesses, according
to the filing with the Securities and Exchange Commission.
Nanosys said it had applied to list on Nasdaq under the symbol
"NNSY" (Nasdaq:NNSY)
However, just this past June 3, 2003, Nanosys led most nanotech
startups in capturing venture capital investments, closing
$38 million in financing for a total of $70 million in equity
and non-equity funding since its founding two years before.
That fundraising event garnered much publicity as Nanosys
closed its second round first at $30 million on April 24th,
2003, almost exactly a year before the IPO announcement, before
opening that second round back up for an additional $8 million
that closed on June 3rd, 2003.
Investors ARCH Venture Partners, CW Group, Polaris Venture
Partners, Venrock Associates, Prospect Venture Partners and
Alexandria Real Estate Equities also participated in the last
financing round; they are joined in this round by CDIB BioScience
Ventures, Chiao Tung Bank, China Development Industrial Bank,
Harris & Harris, Lux Capital, Quanta Computer and SAIC
Venture Capital Corp. Existing investors that also participated
included ARCH Venture Partners , CW Group, Polaris Venture
Partners, Venrock Associates, Prospect Venture Partners and
Alexandria Real Estate Equities.
Chief Executive Larry Bock confirmed that the additional $8
million comes from new investors UOB Hermes Asia Technology
Fund, UOB Venture Technology Investments Ltd., Healthcare
Focus Fund L.P., Eastman Kodak Co., H.B. Fuller Co. and others.
The UOB funds are managed by UOB Venture Management Pte Ltd.,
a subsidiary of United Overseas Bank of Singapore. The Healthcare
Focus Fund is managed by Arch Venture Partners for the California
Public Employees’ Retirement System (CalPERS) . Kodak and
Fuller participated as strategic investors.
According to several of the investors who managed to win a
spot in syndicate, no fewer than 65 investors lined up for
a piece of the company. According to an article by Tyson Freeman
in May 2003, “The competition helped bid the company's valuation
up nearly 75%, says Nanosys CEO Larry Bock.”
Company
valuations shouldn’t be based on something as subjective as
competition between investors and in this case, perceived
value or desperation to get in on a lucrative deal lead by
high profile VC’s. I don’t think anywhere in a valuation course
is investor competition a variable. Was Dot.com and biotech
bubble so long ago?
In July 2004, Nanosys will be about 3 years old. A year before
its IPO announcement, Nanosys President and CEO Larry Bock
said the new $38 million second round investment would enhance
Nanosys' development and marketing efforts for its portfolio
of nanotechnology-enabled products in chemical and biological
sensing, photovoltaic and high-performance macroelectronics.
The $115 million IPO is so that it can further expand its
research across a range of nanotechnology businesses.
What happened during that year after raising $38 million for
a total of $70 million in financing that justifies another
$115 million? Are we actually going to see some product and
sales? As of Dec. 31, 2003, Nanosys had $39 million in cash.
Do they really need more money?
Since its founding in July of 2001, Nanosys has lost $17 million.
In 2003, Nanosys had a loss of $9.2 million on revenues of
$3 million, compared with a loss of $7.1 million a year earlier
on revenues of $283,000 in 2002, according to its regulatory
filing. However, most of the revenue currently derives from
conducting research. In-Q-Tel, for instance, has agreed to
pay Nanosys up to $3 million for research, while Intel has
made a similar commitment for $1.9 million.
Plus, the company is not selling products yet and they admit
it. Designing commercially viable molecules takes years, and
the company will probably have to contend with larger competitors
and other start-ups, regulatory changes, public suspicion
of nanotechnology and intellectual property disputes, according
to Nanosys.
And they still admit it. "To date, we have not successfully
developed any commercially available products," the company
wrote in the S-1 form it filed with the SEC. "We are
currently in the investigation phase of all of our potential
products. We do not anticipate that our first products will
be commercially available for at least several years, if at
all."
The company has licensed dozens of patents from key university
researchers -- many of whom have joined the company -- in
an attempt to create products across a wide number of industries.
Those licensing deals and Nanosys’ own patents have enabled
them to strike joint development deals with Intel; several
government agencies; DuPont; and IN-Q-Tel, the firm started
by the CIA; to name a few. It also has licensing agreements
that allow it to try to commercialize intellectual property
coming out of labs at Harvard, the Massachusetts Institute
of Technology, the Hebrew University of Jerusalem and other
institutions. DuPont wants to use nanotechnology to create
thin, flexible display screens. Matsushita hopes to create
a new kind of solar panel with Nanosys, and Intel is tapping
Nanosys to develop new kinds of memory chips that store data
permanently.
As a company, Nanosys remains small. It has 34 employees in
a small building in Palo Alto that resembles a hospital laboratory.
The labs are filled with chemical vials connected by clear
plastic tubes and powerful microscopes that can show details
of the atoms that the scientists are manipulating.
Nanosys' products include nanowires, nanorods, nanotetrapods
and nanodots formed from semiconductor materials. Applications
include chemical and biological sensors, high-performance
large-area macroelectronics and lightweight high-efficiency
conformal photovoltaics. Among the ideas is to create a kind
of super-velcro that could allow a person to walk up a glass
wall. This all sounds very interesting for a research group
but unfocused for a company that is supposed to be in business
making money.
For a startup with no product, $70 million over 2 years for
a 35 man company, is $1 million per employee per year with
no real product but just research revenues. Sounds like Nanosys
could be overvalued…extremely overvalued.
Nanosys
was started by a team of researchers in July 2001 that included
MIT veteran Stephen Empedocles. Executive Chairman of Board
of Directors, Larry Bock, a biotech entrepreneur who has started
more than a dozen companies, joined Nanosys in October 2001.
He and CEO Calvin Chow assembled a star-studded cast of scientists,
board members and backers. Several team members are from a
successful biotech startup, Calipers Technologies, including
CEO Calvin Chow (also ex-Hewlett-Packard), CTO J. Wallace
Parce, PhD., VP of IP Michael Murphy.
Nanosys
also has an all-star studded Scientific Advisory Board with
Harvard’s Professor of Chemistry, Charles Lieber along with
Paul Alivisatos, a University of California professor who
also directs the Molecular Foundry, a multimillion dollar
research effort funded by the Department of Energy. Other
Scientific Advisory Board members are professors from MIT,
Harvard, CalTech, UC Berkeley, Columbia U, UChicago, etc.
with heavyweights on the Advisory Board such as John Young,
an ex-CEO of Hewlett-Packard, and Greg Yurek, ex-CEO of American
Superconductor Corp. and Christoph Westphal from Polaris Ventures
who is an M.D. with a PhD in Genetics and is also an ex-McKinsey
consultant. Co-founder and Director of Chemistry, Chunming
Niu was a post-doc of Charles Lieber.
Technically
speaking, Nanosys seems like a very expensive research incubator
with a management team who are very marketing savvy and able
to dazzle investors with their vision and pedigrees. They
are brilliant at selling themselves even though they’re not
selling products.
With
its great marketing strategy, Nanosys has also been honest
about the fact that they will not have product for several
years and that the company may have to contend with larger
competitors and other start-ups, regulatory changes, public
suspicion of nanotechnology and intellectual property disputes.
Typically VC’s don’t fund companies at such early stages with
no real product or sales. Have the VC’s finally realized that
in their zeal they came in too early and they paid too much
for Nanosys? Remember what happened to Dot.com? Perhaps an
IPO is their way to recoup their investment and pass on their
mistake to the public?
Nanotechnology has been a hot sector among venture capitalists.
“It's been very eagerly awaited by the nanotech business community,''
said David Forman, a staff writer at Small Times magazine,
a nanotechnology journal in Ann Arbor, Mich. “They are looked
at as the poster child of nanotechnology, and people are looking
to them to legitimize the field on Wall Street.''
The Nanosys IPO will not legitimize the field on Wall St as
many in the nanotech industry hope. What it will do is what
the failed dot.com and biotech IPO’s did for their industries
a few years back. Yet even if the company manages a successful
listing, its strategy is a high-risk, high-reward one that
will pay off only if the technology and resulting building
blocks are adopted as an industry standard in certain niches.
News of disappointed investors in Nanosys’s stock performance
will make it all the more difficult for more viable nanotech
startups to raise funding or go IPO. That is not to say there
will not be any lucrative nanotech IPO’s but this one isn’t
it. For those who buy Nanosys IPO shares, they will soon realize
they’ve been had.
Interestingly
enough, the money in nanotech won’t be made from IPO’s. If
you look at the many big corporations working in the nanotech
sector, such as HP, DuPont, Intel, IBM, etc., the money will
be made from M&A (Mergers & Acquisitions) and licensing
deals between them and nanotech startup companies.
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