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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

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.

Dr. Chin specializes in advising on nanotechnology investment opportunities. She is Founder and Managing General Partner of Seraphima Ventures, focusing on investing in nanotechnology. She is also CEO of Red Seraphim Consulting where she advises investment firms and startup firms on the business strategy of nanotechnology investments. She was Managing Director of the US offices and co-Managing Director of the London offices of Cientifica. Prior to that, she was a Management Consultant with Pittiglio Rabin Todd & McGrath (PRTM)'s Chemicals, Engineered Materials and Packaged Goods group.

Dr. Chin will be advising the Cornell University JGSM's student run VC fund, Big Red Venture Fund (BRVF), on investing in nanotechnology.

She is a Senior Associate of The Foresight Institute in the US and was the US Representative of the Institute of Nanotechnology in the UK. She was an alternate finalist for a Congressional Fellowship with the Materials Research Society.

She was also a Guest Scientist collaborating with the National Institute of Standards & Technology (NIST) Polymer Division's Electronic Materials Group under the US Department of Commerce.

Dr. Chin is a US Citizen born and raised in New York City.

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.

Read all her articles.

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