An IPO That Won't Happen Soon

I once recruited Stephen Empedocles, Nanosys’ Vice President for Business Development, to be a speaker at Nanotech and Biotech Convergence—2004, a conference that I was organizing for BCC. He said he would do it as long as he could be a keynote speaker. I thought that was pretty cheeky, but I agreed, because Nanosys, with its Dream Team board of scientific advisors, is one of the premiere nanotech companies around. Plus I wanted to find out what they were getting for all the millions of dollars they were spending on intellectual property.

A week before he was scheduled to speak, Empedocles called me up and said that lawyers for Nanosys were forbidding him to speak. “Why?” I asked. The lawyers were also forbidding him to say why, but all would be revealed, he said, in due time.

Well, due time came and went and I had just about forgotten the whole episode, when notice came that Nanosys was going to hold an initial public offering (IPO). Empedocles and other officers were in the SEC mandated “quiet period” before an IPO during which they could do no public proselytizing. Though there are a few publicly traded nanomaterials companies, eg Nanophase Technologies [NANX—NASDAQ], Nanosys would be the first high profile company to test the public’s appetite for nanotech. The date was set for the IPO. Nanotech execs and stockbrokers held their collective breaths and then…nothing happened. The offering was first put on hold—Nanosys execs were off the speaking tours for months—and then, because of “market conditions,” the IPO was quietly withdrawn. But it sounded like a window slamming shut. NASDAQ might as well have put out a sign that no nanotech companies need apply for listing.

There were corollary effects as well. A recent study suggests that venture capital funding for small tech has actually declined in the last year, despite heavy government funding of nanotech research. With no IPO outlet, the exit strategies of venture capitalists are severely restrained. The “chasm of death” that lies between the end of venture capital and the beginning of public funding yawns ever wider.

Ironically, one company that has not suffered at all is Nanosys itself. A series of government contracts have kept the wolf away from the door. Yesterday came news that Nanosys had raised another $40 million in capital in a financing led by El Dorado Ventures. So we can expect that Nanosys will be in no hurry to resurrect its IPO attempt.

What the nanotech industry (if there is such a thing) needs is one big payout for investors to whet the public’s appetite. Right now, I’m not sure where it’s going to come from. But it’s out there.