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Home > Nanotechnology Columns > Alan Shalleck-NanoClarity > Maximize Your Liquidity - Make Sure Your Nanocompany Survives the Recession

Alan Shalleck
President
NanoClarity LLC

Abstract:
A prolonged recession is bad for nanotechnology companies because on the market side, fewer customers will opt for nanotechnology innovation and others will have reduced budgets with no allocation for your new nanotech products. On the input side, little or no new or incremental venture or risk capital from VC's, institutions or individuals will be available to use to manufacture and sell what you have in the hopper and/or to grow as you have planned. These negatives project to cash flow pressure on most nanotech companies during the recession months. Many nanotech companies will go out of business. Therefore, the need now is for survival of your company. My suggestion is immediately build and maximize your liquidity for staying power … no other strategy makes any short term sense.

October 15th, 2008

Maximize Your Liquidity - Make Sure Your Nanocompany Survives the Recession

Maximize Your Liquidity
Make Sure Your Nanocompany Survives the Recession
By
Alan B. Shalleck
NanoClarity LLC
October 2008


I've written this column three times and each time I've completed it, economic conditions led by the Wall Street and credit melt down have worsened and my proposed strategies have become irrelevant. Economic conditions today are worsening. Every model I have seen says the world is headed into a deep recession that will last at least 18 - 24 months.

A prolonged recession is bad for nanotechnology companies because on the market side, fewer customers will opt for nanotechnology innovation and others will have reduced budgets with no allocation for your new nanotech products. On the input side, little or no new or incremental venture or risk capital from VC's, institutions or individuals will be available to use to manufacture and sell what you have in the hopper and/or to grow as you have planned. These negatives project to cash flow pressure on most nanotech companies during the recession months. Many nanotech companies will go out of business. Therefore, the need now is for survival of your company. My suggestion is immediately build and maximize your liquidity for staying power … no other strategy makes any short term sense.

Over the last forty-five days, what to do strategically and financially as an emerging nanotech company was increasingly unclear and then became scary. Now with most governments massively intervening to shore up banks, and the credit markets, (which literally came to a total stand still last week) beginning to show some life because of the billions of your dollars committed to an incorrect long term strategy, some survival strategies are apparent. Forget the stock market and the existing or potential value of your stock. It has become irrelevant. Just make it through the trough. Here are my two strategic suggestions.

The first strategy to employ as a nanotech company is to build your liquidity as swiftly as possible. Liquidity… that is cash in the bank …equates to staying power and to survival. Get first what you have already negotiated. Build your cash position to the maximum, regardless of interest cost, and then be creative and generate more cash. Put the cash in the bank and program its use carefully over at least 18 months.

If you have a line a credit that still has some headroom in it, take it down fully. Note, if you do not take it the maximum, your financial institution might very soon reduce the existing line or even cancel it if conditions worsen as the recession gets deeper. Better to have the cash than to argue for it. Do not even question the interest rate. In sum, monetize the entire line of credit.

There will be no IPO possibilities for nanotech companies for at least 18 months so if any of you were planning to raise money via an IPO next year, forget it. IPO's need an optimistic investor environment to be successful. IPO success is measured by the stock price in the after market, not by the pile of dough that ends up in the company. Successful IPO's lead to others. Rising tides lift all IPO boats. In this economy, the tide is sinking and we will be at low tide for a long time. Any investment banker who talks to you about a near term IPO is just blowing smoke. Throw him out.

Here is the second part of the available strategy for nanotech company survival, and it is a gift from Washington. In the recent policy decisions by the Federal Reserve and the department of the treasury is a little recognized policy of the government that is a blessing for nanotech companies looking for funds, even during the budding recession.

The government in the near term has proposed to guarantee new loans to small and medium size businesses written by banks. Whether the mechanism is enhanced SBA guarantees or directly is to be determined but there is no doubt that a new administration is going to balance the big bank loan guarantees with a program for small business loans.

How about that! Even in the recession there will be hope to raise money if your survival as a company becomes an issue. ... if you play your cards correctly. Before you do anything else in the next 30 days, go to the head of your lead bank and ask him how much you can borrow in the next six months under the expected government guarantee program. Most of your bankers will not be aware that they will be able to write risk free loans to your company for the next six to nine months. This window of opportunity will go away at the first signs of sustaining economic recovery. Also, talk to your investors about the loan opportunity and ask for their help.
Try to take down as big a loan as the bank is willing to give you. In a recession, there is no such thing as too much cash.



Alan B. Shalleck
NanoClarity LLC
www.nanoclarity.com


© NanoClarity LLC 2008

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