Nanotech Insights #7
Today we sit at the beginning of a major “de-leveraging” of the credit system upon which world economic growth is based. We have never seen anything like it in my 35-year professional career. Already, it almost rivals the mid-1982 deflationary vs. inflationary spiral point of decision, that, fortunately, Volcker navigated successfully.
This crisis will definitely affect nanotech & other advanced technology investing, as well as investment returns, in very serious and mostly negative ways.
I am told that the word “crisis” in Mandarin lettering is the co-joining of the mark for “opportunity” and the mark for “danger”.
Certainly, while “small” & advanced tech investing continues to fall off a cliff (see more confirmation below) the danger will continue for already invested VCs and angels, as well as those long the stocks.
Around January 20, all the major nanotech stock indices, including our own, The Nanotechnology.com Small Tech Index, hit 5-year lows; five year lows.
In the 2005 book, Nanotech Fortunes, we described the importance of 4-year lows in all “boom/bust” markets as well as the importance of the mid 2006 to late 2009 timeframe for setting up a premier buying opportunity.
We have been speaking about this and writing about this since 2003. Others, less familiar with the public markets, high-risk investing or the demands of the science and technology (or all 3), have been much too early, and are paying for it now. They underestimated the FDA process, the time it takes to do good engineering, overcoming or not considering physics problems, packaging issues, taking something from a lab bench to industrial scale-up . . . etc.
Of equal or greater import, the fact that IBM, DuPont, Chevron, Intel, GE etc. are far more likely to advance their in-house nanotechnology to products than a small company is to overtake them was all but forgotten. In addition, so-called “traditional” technology often trumps the best-laid plans:
http://www.technologyreview.com/Infotech/20148/?nlid=851
Yipes!
Some forgot it wasn’t 2000 anymore; the public would not accept bets on the distant future promise of returns in exchange for the possibility of near-term capital gains.
On the other side, scientists, engineers and high-tech executives with patents and other intellectual property have welcomed the investor community’s largess with open arms. Who can blame them for creating receptacles for the dollars? They want their labs fully funded and are more than happy to do their work, push the edges of science, publish and advance their technologies . . . as long as the livin’ (and money) is easy.
We have a phrase for this in mining and oil and gas venture capital. Many geologists love being “in the bush” and “turning the drill bit to the left”; they are much less concerned than you (the investor) are that they actually “find” anything. They enjoy the activity of their work, and for them that is its own reward (if they are paid to do it, all the better . . . lol).
This game is over. Actually, it was over in 2002/2003, but the “smartest guys in the room” didn’t grok it, and they led sophisticated institutional investors along with mom and pop, retail investors astray.
Today, “Greentech” and “Cleantech” are the catchwords of the moment. They too will have their comeuppance in the throes of the exuberance of too many solutions chasing too many markets that may or may not even exist. Not only are these catchwords just new ones for “nanotechnology”, “small tech” and “advanced technologies” (think about it, except that they usually don’t include the medical or semiconductor sides of “small tech”, they really are).
As investors and the average folks come to realize how distant some of these markets are, how plentiful oil actually is (nanotechnology is even “finding” more: http://www.technologyreview.com/Nanotech/20114/?nlid=833) and, may I say it, how much Gore has changed his “vision” for his pocketbook, this enthusiasm, too, will fade. “Gone with the wind” and wind-farms . . . if you will. (Please don’t write me on this; I’m not saying solar, wind, clean coal, pollution tech etc. etc. aren’t great things . . . only that the investment enthusiasm is ahead of itself . . . yet again.)
When the bottom comes, we expect you’ll find:
Coatings – good
Catalysts - good
Advanced materials - good
Lubricants – good
Filtration - good
Insulation - good
Photovoltaic companies - not good
On the other hand, if you are itching to speculate in the Bear market, here are a few names in our universe that appear to have bottomed for the intermediate term and should rally more if we’re wrong on the major trend and go down less if we’re correct. We would certainly hold them only with stop losses at their February lows. (Full disclosure: Friends, associates and I may trade or be long or short any stock at any time)
XLNX, CCMP, IPGP, ADI, ALTR, ALTI, CALP
As you can see, they are most all semiconductor issues.
Nevertheless, let’s not be wild-eyed optimists.
Since the nanotech tales of woe, detailed in October 2007 (http://www.nanotechnology.com/blogs/blognano/2007/10/october-1st-notes-from-small-tech.html), more woe:
In mid 2007 and into last week, one single, unlucky investment bank raised ARWR $16.5 million at $5.78 per share with ¼ warrants at $7.06 (it’s now $2.10). They raised NANX $10.6 million at $5.92 (now $3.21). Now, oddly, they were unable, for whatever reason (amazed neither the company itself nor the underwriter have yet to release details at this late date), to bring private company, Nanodynamics, public on the Dubai Exchange last week.
Consider more woe: Considered by some a superstar, NSPH, went public only in early November 2007 at $14 - - today $9.60.
Sorry, but this continues a pretty darn bad record for nanotech investing and investments, and you know what they say about those who continue repeating the same activities while expecting different results.
As we’ve been saying and writing publicly since 2004, the “VC to IPO or M&A model” (nothing against VCs) is “broken” (it’s the wrong model) for “small” tech investing, largely because it requires more capital than can be efficiently put to use by these type of companies. A merchant banking model (read Hambrecht & Quist, Petrie/Parkman or Allen & Co. model) wedded to the public venture capital stock markets and going public early is a better formula for success.
All that said: We are certainly closer to a long-term bottom than at anytime in the last 10 years, and, properly structured for ROI (return on investment), nanotechnology and other advanced tech deals, companies and stocks, will prove incredible investments over the next 3-7 years.
Especially when the investments are made at pre-public, private placement valuations.
As we continue in these Nanotech Insights (which will become more frequent and much more concise), it is my hope that kindred spirits, including VCs, investment bankers, angel investors, analysts, scientists, hedge and private equity fund managers, high-tech entrepreneurs, public and private “small” tech companies and family office execs, will gravitate toward The Nanotech Company, LLC. Our vision of using the TSX Venture Exchange to finance and create liquidity for “small” and advanced technology companies and our deep expertise in successful employment of Canadian public venture capital markets are unique.
For further information, contact directly:
Darrell Brookstein
Managing Director
The Nanotech Company, LLC
858 794 0848
darrell@nanotechnology.com
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