Strange Secondaries part 2 -- TINY
So the Google secondary is a little unusual, and I don't think anyone yet understands why they decided to make a secondary offering right now, when there's no clear need for cash that us individual investors can see.
But the Harris and Harris (TINY) secondary makes a lot more sense to me, even if it's not being particularly well accepted in the market. This was announced a while ago, to some sturm und drang, but I still don't get the concern.
Sure, there's the basic concern about secondaries that we should always have -- they are almost always dilutive, and they almost always have a negative impact on the most widely used metric out there, earnings per share.
But this company is a whole different kind of animal -- Harris and Harris is a publicly traded venture capital firm. They don't have any earnings to speak of right now. What they have is a portfolio of potential -- a portfolio of investments in private companies that have something to do with Nanotechnology. TINY exists to find promising companies in the nanotechnology arena, and to make early state investments in those companies in the hope that over a period of many years those companies will either go public or be acquired at great profit for the early stage investors.
Now, nanotechnology is certainly a reality, but it's not an area where there are already lots of strong operating companies. It is primarily a reality in the lab, and a reality in the minds and plans of technology entrepreneurs, even though in some areas, like semiconductors and textiles, it has already made an impact. The best is yet to come for nanotech, and money making industries should blossom from the technology. But not just yet.
So how does Harris and Harris grow? Two possibilities: They can have successful investments, sell them at a profit, and use that greater sum of cash to invest in more companies; or they can issue secondary offerings to raise more money to invest in more companies. I expect many of these companies to take a long time to develop, so I'd rather not see TINY try to trade their investments in them prematurely -- that kind of churn works against the long term success of even most individual investors, and it certainly works against early stage investors in private companies.
Is the share issuance dilutive? Well, not really -- all TINY shareholders own are the cash on the balance sheet and the investments in companies that may or may not ever pan out. Now there will be more cash on the balance sheet, and more potential ability to invest in tiny technology. That means that Harris and Harris can either diversify their investments further among a promising crop of small nano companies to increase their chances of participating in a big payday at a few of them, or they can make larger investments in the companies they have already invested in, thereby increasing their influence over the companey and their payday if they have decided that some of these companies show much more promise than others.
If you don't think that TINY can effectively invest this additional money in promising nanotechnology companies, that implies that you should probably have never invested in TINY in the first place. There is no shortage of places where they could put money, their investments to date are quite small in each company (relative to the investments made by other VC firms), so it might even be that a larger war chest gives them better competitive positioning amongst the crop of nano VC companies.
This offering makes perfect sense to me. TINY's investments may or may not be the most promising ones avaialable in the nanotech arena, but that's an argument for another day. I don't see how you can argue that there is a better way for them to grow than by raising more money, and increasing their ability to invest in more companies or as a larger participant in the companies they've already identified -- that, indeed, is exactly what they should do.
technorati tags: TINY, Harris and Harris, nanotechnology
But the Harris and Harris (TINY) secondary makes a lot more sense to me, even if it's not being particularly well accepted in the market. This was announced a while ago, to some sturm und drang, but I still don't get the concern.
Sure, there's the basic concern about secondaries that we should always have -- they are almost always dilutive, and they almost always have a negative impact on the most widely used metric out there, earnings per share.
But this company is a whole different kind of animal -- Harris and Harris is a publicly traded venture capital firm. They don't have any earnings to speak of right now. What they have is a portfolio of potential -- a portfolio of investments in private companies that have something to do with Nanotechnology. TINY exists to find promising companies in the nanotechnology arena, and to make early state investments in those companies in the hope that over a period of many years those companies will either go public or be acquired at great profit for the early stage investors.
Now, nanotechnology is certainly a reality, but it's not an area where there are already lots of strong operating companies. It is primarily a reality in the lab, and a reality in the minds and plans of technology entrepreneurs, even though in some areas, like semiconductors and textiles, it has already made an impact. The best is yet to come for nanotech, and money making industries should blossom from the technology. But not just yet.
So how does Harris and Harris grow? Two possibilities: They can have successful investments, sell them at a profit, and use that greater sum of cash to invest in more companies; or they can issue secondary offerings to raise more money to invest in more companies. I expect many of these companies to take a long time to develop, so I'd rather not see TINY try to trade their investments in them prematurely -- that kind of churn works against the long term success of even most individual investors, and it certainly works against early stage investors in private companies.
Is the share issuance dilutive? Well, not really -- all TINY shareholders own are the cash on the balance sheet and the investments in companies that may or may not ever pan out. Now there will be more cash on the balance sheet, and more potential ability to invest in tiny technology. That means that Harris and Harris can either diversify their investments further among a promising crop of small nano companies to increase their chances of participating in a big payday at a few of them, or they can make larger investments in the companies they have already invested in, thereby increasing their influence over the companey and their payday if they have decided that some of these companies show much more promise than others.
If you don't think that TINY can effectively invest this additional money in promising nanotechnology companies, that implies that you should probably have never invested in TINY in the first place. There is no shortage of places where they could put money, their investments to date are quite small in each company (relative to the investments made by other VC firms), so it might even be that a larger war chest gives them better competitive positioning amongst the crop of nano VC companies.
This offering makes perfect sense to me. TINY's investments may or may not be the most promising ones avaialable in the nanotech arena, but that's an argument for another day. I don't see how you can argue that there is a better way for them to grow than by raising more money, and increasing their ability to invest in more companies or as a larger participant in the companies they've already identified -- that, indeed, is exactly what they should do.
technorati tags: TINY, Harris and Harris, nanotechnology
Labels: TINY
This article posted by One Guy @ 8/18/2005 10:31:00 AM 2 comments
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