Harris & Harris (TINY), a venture capital firm focusing on nanotechnology, will get a big boost in net asset value next week from the IPO of its largest holding, Solazyme, Inc., a company that grows algae in tanks of sugar feedstock to yield oils that can be used as fuel or for other purposes. Lead underwriters are Goldman Sachs (GS) and Morgan Stanley (MS). Solazyme is Harris & Harris’ largest investment, accounting for 24% of the carrying value of its $97 million portfolio of about 30 companies.
Harris & Harris’ shares closed at $4.95 on May 17, 2011, slightly above the company’s $4.73 net asset value per share, as of March 31, 2011. Solazyme’s IPO is scheduled to hit the market early next week, at an expected $15-$17 share price. That should raise the carrying value of TINY’s investment in Solazyme by about $14 million, driving TINY’s NAV per share above its recent stock price. That alone is not a sufficient reason to buy this stock, since TINY’s stock price can remain below NAV for extended periods. But the “coming out” of Solazyme does speak well to Harris and Harris’ ability to invest early in companies that can gain substantially in value, having made its first Solazyme investment in 2004.
Harris and Harris’ business model is to invest in small nanotechnology companies that have exceptional growth potential. As they progress from the early research stage, these companies need a strong IPO environment to attract large investments in order to realize their potential. Since stock prices bottomed in March, 2009, the gradual resurgence of the IPO market and the strong performance of technology stocks are starting to pave the way for TINY to capitalize on its investments.
Disclosure: I am long TINY, GS.