Click here to enlarge image

Aug. 5, 2004 – The widely anticipated IPO of one of the nanotech sector’s hottest startups was pulled yesterday, leaving analysts, entrepreneurs and investment professionals to make sense of it all.

Not surprisingly, their reactions tend to reflect their financial stakes in the market and their aspirations for the nanotechnology sector.

Click here to enlarge image

Nanosys Inc., a Palo Alto, Calif.-based, developer of inorganic semiconductor nanocrystal technology, cited “adverse market conditions” and stated simply that it had determined that “it is not advisable at this time to proceed with the proposed offering.”

Executive Chairman Larry Bock declined to comment, citing regulations. In the case of IPO withdrawals, experts say, companies usually don’t make another run at Wall Street for at least six to 12 months, if not longer, depending upon market conditions.

Financial professionals on the buy side — those who buy and sell stocks on behalf of mutual funds and other institutions — appear to think the Nanosys IPO was too early.

“This will actually help us to go away from the pure and abstract ‘nano’ fixation,” said Thiemo Lang, portfolio manager of the Activest Lux Nanotech mutual fund in Munich, a fund that invests in nanotechnology-related companies.

Lang said Wall Street would more likely favor companies at a more advanced stage of development with existing products that address near-term markets. He declined to comment whether he had intended to participate in the Nanosys offering.

Press reports leading up to the expected week of the IPO lambasted Nanosys for having only $3 million in revenues in 2003. It was also pointed out that one of the few hard metrics available to value the firm – a price-to-revenue ratio over 120 – suggested it was a speculative investment, and that if it performed poorly, it would undermine the ability of other nanotechnology firms to access the public markets.

However, people on the sell side see it differently. Charles Harris, chief executive of Harris & Harris Group Inc., a venture investor in Nanosys, took issue with the argument that “somehow or other it’s immoral for certain companies to go public at a certain stage of development.”

He said that it’s up to the market to determine what it wants, as long as disclosure statements adequately explain the risks involved.

While the news is doubtlessly a blow to a sector that has been trying to establish its legitimacy on Wall Street, industry insiders say the startup’s withdrawal is as much a reflection of the market’s aversion to risk, as it is a referendum on nanotechnology.

“It’s not a nano-specific issue,” said Sean Murdock, recently appointed executive director of the NanoBusiness Alliance, a nanotech industry trade group. “It’s a soft IPO market.” Or, at least, it may be softening.

Moreover, withdrawals are on the rise. Seven IPOs were withdrawn in June, according to Nasdaq.com, up from an average of 1.8 per month for the first six months of year.

A modestly healthy IPO window returned early this year, but it has favored more mature, product-centric companies that are on average 6.9 years old, according to Thomson Venture Economics data.

On the other hand, Nanosys is only three years old and has a platform-technology business model that it claims has greater potential upside, despite smaller short-term revenues. In other words, Nanosys tried to get a round company through a square IPO window.

Leaders of other nanotechnology startups tend to downplay the long-term impact, but said it could delay nanotech’s advance onto the public markets.

“The market is the ultimate arbiter,” said Norm Schumaker, president of Molecular Imprints, a developer of tools for nanoscale semiconductor fabrication, via e-mail. “I would not read anything adverse in their decision. They and others now have more time to build an even better story for the investment community.”

Randy Bell, the president of nanomaterials developer Nanotechnologies Inc.,  reacted similarly. “It allows those of us intent on building a solid business foundation to focus on our business instead of the allure of a potentially premature IPO. I do not believe it will have adverse impact on future funding.”

Two previous nanotech IPOs already happened this year. Immunicon Corp. (Nasdaq: IMMC) of Huntington Valley, Pa., priced 6-million shares at $8 apiece and commenced trading on April 16. Lumera Inc. (Nasdaq: LMRA) of Bothell, Wash., priced 6-million shares at $6.95 and began trading July 23.

However neither were closely watched as bellwethers for nanotechnology IPOs, as Nanosys was.

Now, said Murdock, “That seminal IPO might be a year out and it might not be Nanosys.”

Other News Sources

Nanosys pulls share offer as new high-tech sector slips – International Herald Tribune

Nanosys withdraws initial public offering – Reuters

Nanosys pulls $100 million IPO plan — CBS Marketwatch

Update 1: Nanosys Withdraws Initial Public Offering — Forbes.com

Nanosys, Inc. Withdraws Initial Public Offering — Yahoo! Finance