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.
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.
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.
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.
is where I start to digress from my original point of this
piece but bear with me. Over time, in the VC’s mind, an exit
strategy is successful as long as they recoup their investment
and make money from it and then go on to invest in the next
venture. However, this is not considered a success for the
person who bought their shares and then watched their value
drop because the company’s potential was overhyped and overvalued
when they bought it. In some people’s mind in the more extreme
case, this could constitute fraud. Some might even argue there
is a fine line between overvaluing and overhyping company
performance and potential considering we’ve heard the Enron,
Worldcom and Tyco stories to make us just uneasy enough to
lean that way. What makes us uneasy is how easy it is to do
that and allowed to do that because such practices are so
ingrained in the corporate culture. Every investment deal
that comes across investors’ desks is assuredly labeled as
a big picture perspective, a successful entrepreneur and/or
CEO is one who creates, leads and manages a company whose
value holds through the good and bad times because he is a
good leader and strategist for the company. Is a CEO successful
just because he was able to bring a company to a successful
IPO? What if the company tanks afterwards?
believe that being able to make money on the IPO even though
the company in the long term fails still makes for a success
story and a successful CEO. A CEO is considered successful
if he makes a lot of money for its investors via an IPO even
though the company tanks in the long run? Is there something
wrong with this logic?
along the line, the other half of the equation that got lost
in the strive for excess is that the company should actually
be expected to maintain its projected value after the IPO.
Of course, on the other hand, as investors, we all have to
do our own due diligence before buying shares in anything.
We also must shoulder some responsibility as investors. An
IPO should not be used to recoup investment in a bad opportunity
for investors by passing on the bad news to the public. An
IPO should be used to cash in a successful investment.
may be the poster child of nanotech, but it needs to grow
up a little more, perhaps reach adolescence first by proving
it can make some real product and sales, before moving out
on its own into the public domain. It is a good company but
it’s just not ready to go public. Their marketing team is
very good and they have very good network and lots of funding.
However, Nanosys’ legs are still taking its first steps. If
its legs are not strong enough to support itself, it could
fall and hurt itself. With the current market mentality, for
nanotech and for any other industry for that matter, we should
take the cue from Orson Wells’ famous line for Paul Masson
wines in their commercials where there should not be an IPO
before its time.