Investing in pre-IPO nanotech firms gets harder

Small investors who want to invest in nanotech startups have for years turned to publicly-held venture group Harris & Harris Group, which has focused on private companies in nanotech and microsystems.

With the economy down, and initial public offerings (IPOs) more rare, this strategy is changing.  Brian Gormley of the Wall Street Journal’s Venture Capital Dispatch explains:

In a June 28 letter to shareholders, Chief Executive Douglas Jamison said many of its private holdings are maturely nicely. Even so, volatility and risk aversion in the public markets are making it difficult for these companies to go public…

“With the lengthening time between investment and return on investment in private venture capital-backed companies, we need to find a way to generate returns with greater frequency,” Jamison said in the letter.

“As a public company, we should not count on investors to wait five years between liquidity events. We will seek to position our investments so that we can demonstrate positive returns on investments on an annual basis.”

The firm is therefore turning its attention to public companies with market capitalizations below $50 million. Many of these companies have exciting products enabled by nanotechnology and microsystems, Jamison wrote, and several are a year or two ahead of comparable venture-backed companies.

This means less investment will be available to pre-IPO nanotech companies, at least for now.  Not good news, but near-term nanotech can’t be expected to escape the economic downturn.  Sigh.  —Chris Peterson

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