Where are the Advanced Technology Merchant Banks?
If you have not already sent me a short note that puts you on my “short list”, I ask that you respond to the following three quick questions by reply e-mail, ASAP: IMPORTANT: Did you receive both Letters #1 through #3? If not please read my blogs here below from October 21 -
Dear Nanotechnology.com Member,
This is my fourth letter on "small" and advanced technology investing.
As before, if you do not wish to hear from me again, don’t reply to this; simply click the small "Remove" button at the bottom of this email and follow the short instruction there.
What’s wrong with investments and investing in “small” and advanced technologies and why are there so many mismatches?
I’ve been regularly exposing many of the problems with our (American-style) investment process and investment returns since 2003 in writing, presentations at nanotech and investment conferences and my book, Nanotech Fortunes. An example that tells part of the story: At a major conference in spring 2004 the buzz was an anticipated NanoSys IPO by Lehman and Merrill Lynch. As the standing-room-only audience shook its collective heads, I noted, as a member of the venture investing panel, that if I was advising the company or the bankers involved I would tell them: first, that it was too early to go public in the post tech-bubble period without revenues (earnings? Fugettaboutit . . . . .much less a product . . . wow!); second, if they had to go public to wait until AFTER a Google IPO (clearly expected to be the most important tech IPO of the year); and third, in any event, to wait at least until after September 10th 2004, so that a full, non-vacationing pro and retail investing audience would be available.
Now I was on the spot as the range of fellow-panel members and the conference attendees was only whether the IPO would be before the end of May or not until June, and (oh, by the way) “this is gonna be HUGE for nanotech and nano-investing”.
They tried the IPO in the summer, before Google and well before the second half of September and it failed miserably: pulled “due to market conditions” – investment banker translation “we couldn’t even get this deal half-done at the bottom of our expected range; there was insufficient demand” – further translation – “are you kidding; $450 million market cap for a company without a product?”
Fast-forward into 2007: Ever more IPO’s and secondary financings are promised that either never materialize or come out late and with disastrous results for investors. (I can name 5 of these events in 2007 alone; how about you?) Large mutual funds and professional investors, including VCs and hedge funds (for gosh sakes) get their heads handed to them, while the naïve entrepreneurs and scientists can’t figure out where their hoped for, Porsche’s and Bentley’s went.
The retail investor is NOWHERE to be found, because even the folks hanging around Vegas casinos need to see an occasional winner walk out the door to entice them to enter. A few weeks ago I pointed out in my letter about a dozen truly incredible winners, but most are companies that went public ages ago; “but what have you done for me lately?”
All these problems, misapplication of capital, incorrect valuations and generally magical thinking seem to plague “small tech” investing and no one seems to have an answer to it. This is what happens when very smart people think about the answers to questions they don’t even know to ask. . . . hmmm.
I believe the games of poker, golf, bridge, chess and tennis can offer us some clarity.
You are probably at least a decent amateur (or practiced dilettante) in one of these games. That should mean, minimally, that you A. know by watching for 30-60 minutes whether someone else is better or worse than you and if they might even be a professional and B. You should be able to tell if they will ever reach to a higher level or what it would take for them to do so.
Now imagine you’re watching a golfer, but you’ve never played golf or you’re watching a bridge game, but you know nothing about it, not even the rules.
That’s the position of the participants in the current “dance” that represents itself as intelligent, nanotech or advanced tech investing. I’m not saying the folks involved aren’t very smart (they are VERY smart); I’m saying they are not even players of the game they are playing (much less pros). They are so unaware, they don’t even know appropriate questions to ask, what players or cards or pieces of equipment they’re missing.
They know how to play the role at which they excel. They don’t know how to win the game they’re playing; all they know is the score it takes to win.
Imagine a baseball team with great players, but no coach; no one who knows the game and how to put all the pieces together to win. (the captain is not the coach; the owner is not the coach; the talent scout is not the coach)
The problems are almost institutional, not personal (please, don’t email me to say you’re a scientist who’s a proven, great businessperson, etc. etc. – the following need only be true, as a rule.)
VCs don’t really know the public markets or anything else except what they know.
Investment bankers don’t really know venture investing or anything else except what they know.
Scientists don’t really know business or corporate governance or anything else except what they know.
Entrepreneurs and executives don’t really know how to structure a stock deal or anything else except what they know.
Well, you might ask, can’t the same problems and limitations be said to apply to every industry and high-tech specifically?
My premise is “No, it only applies to “small” and advanced technologies”.
They’re unique.
Why?
Because advanced tech has yet to develop a functioning, professional, legitimate “promoter-class”.
This group took years to develop and now exists in boom/bust industries like mining, biotech and oil & gas; it has existed for ages in most other industries from insurance to specialty chemicals, from banking to apparel retailing.
It is a “class” that has a merchant banker’s deep and exquisite understanding (I’ve actually written a 24 page white paper on this) of ALL the problems and issues related, not only to the technology and business of a particular industry’s companies, but also to the financial, financing, investment and stock market play roles in the development of the industry and the company.
Whew!
Nanotech, MEMs, micro-fluidics, the cutting edge of microelectronics, opto-electric, laser and advanced materials (among others) are sorely lacking this class.
I’ll extend this more in about a week (Happy Thanksgiving to the Americans among you) .. . and please stay tuned if this is of interest. We’ll focus more on the mismatched expectations of all the participants in “the play” that is advanced tech finance, and take a closer look at one possible solution.
So, again, if you have not already done so, please remember to reply right now with the short answers to the 3 questions at the top or near bottom of this letter.
Thanks for your time and attention.
Best regards,
Darrell Brookstein
Managing Director
The Nanotech Company, LLC
858 794 0848
Again, please note well: If you have not already sent me a short note that puts you on my “short list”, I ask that you respond to the following three quick questions by reply e-mail, ASAP: IMPORTANT: Did you receive both Letters #1 through #3? If not please read my blogs here below from October 21 -
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