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June 26th, 2007
Whipsawed Nanotech VC Value
It's no secret that certain nanotechnology stocks get whipsawed as news and investor enthusiasm for this new science heats up and then cools. Publicly traded nanotechnology venture capital firm Harris & Harris Group (nasdaq: TINY - news - people ) is a case in point.
This New York City-based firm is invested in a diversified range of early-stage nanotech companies. Its portfolio consists of 27 private companies, and its shares trade mostly on investor hype over their potential for growth. Earlier this month, the stock hovered around $11.50, with a market cap of $245.2 million. But with net assets of $113,930,303 and 21,015,017 shares outstanding at the end of 2006, TINY's net asset value (NAV) per outstanding share was $5.42. That means investors were getting $5.42 worth of value for a share price of $11.50--not a great trade if you're measuring performance by the usual metrics of sales and profits.
But, as I've written in earlier issues, conventional valuation metrics do not apply well to business development companies (BDCs) like Harris & Harris or similar firms, such as Allied Capital (nyse: ALD - news - people ) or MCG Capital (nasdaq: MCGC - news - people ). Since the growth of BDCs is so closely linked to the potential appreciation of their portfolios, most investors pay closer attention to the NAV--or more specifically, to how the share price compares with the NAV. Even by that measure, however, TINY's stock would seem overvalued.
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