TINY: Are Shareholders About to be Rewarded?
In a July 2013 article, we highlighted Harris and Harris (NASDAQ:TINY), a publicly traded venture capital company that is focused on investing in companies that are involved in disruptive technologies. The article noted that TINY has not been a good long term investment. If you had been invested in TINY over the past 5 years, you would have lost -40% of your investment while if you had invested in the Nasdaq instead, your investment would be up over +120%. With the exception of a share price increase in early-mid 2014, the shares continue to languish and are trading around $2.79 compared to a $3.00 share price at the time of our first article.
Net Asset Value (NAV) is calculated by taking all a company’s assets (investments in private portfolio companies, rights to milestone payments, public securities at value, and cash) and then subtracting any liabilities (loans, accounts payable, deferred rent) to arrive at a number that represents “net asset value” or NAV. In the case of TINY, this number is around $120 million. Of that number, 19% is cash and 81% represents investments. With all things being equal, this means that TINY should also have a current market cap of $120 million, however that number currently sits at $86 million which represents a 28% discount. If we subtract out cash, this leaves us with a valuation of $63.5 million compared to $96.6 million in investments. It’s worth noting that those $96 million in investments had a cost basis of $110.6 million meaning the investments have lost -13% so far.
TINY’s Top-10 Investments
As of September 30, 2014, TINY’s top ten investments by value accounted for approximately 83% of the value of their equity-focused venture capital portfolio:
The above list is very telling for investors in TINY. One year ago, the top-10 investments represented just 73% of NAV showing that TINY’s strategy to take larger bets on companies is working. Let’s take a closer look at the top-3 investments above which represent a current value of $38 million or about 60% of TINY’s current market cap minus cash.
We highlighted TINY’s largest holding, Adesto Technologies, last year and their conductive bridging RAM (CBRAM) memory product which is targeting a $70 billion market. Adesto began sampling its first CBRAM product in 2013. TINY first invested in Adesto in 2007 and over the past 7 years has participated in 6 investment rounds for a total of $10.5 million. That investment rose 17% in valuation this year and is now valued at $17.2 million representing a 64% return over time. The steadily increasing valuation is a positive sign for this late stage investment which could be looking for an exit via acquisition or IPO.
Enumeral has developed a quicker and more effective way to find ideas for antibody drugs than more traditional methods. This blog post from TINY describes the technology in detail. Enumeral recently executed a reverse merger with an over-the-counter (OTC) shell company to raise $21.5 million by selling 21.5 million of its shares to investors at $1 apiece (OTCBB:ENUM). TINY has nearly 8 million shares in ENUM at a cost basis of $5,591,299. The lock-up period on TINY’s 7,966,368 shares of Enumeral Biomedical expires on January 31, 2016. Until then investors can easily value this investment based on the current share price of (OTCBB:ENUM) ($1.04 as of 11/11/2014).
In April of this year, Metabolon was said to have confidentially filed for an IPO which was expected in the months following but has yet to take place. In March of this year, Metabolon partnered with Human Longevity, started by genomics pioneer Craig Venter. Mr. Venter, who is the founder of Synthetic Genomics, also sits on the advisory board at Metabolon. Metabolon will provide biochemical profiling services to Human Longevity. This September article on Seeking Alpha postulates that the recent successful IPO of metabolomics company Calithera (NASDAQ:CALA) could result in Metabolon looking for an IPO next. The article places a comparative valuation of TINY’s investment in Metabolon at $60 million, or about half of TINY’s entire NAV today. TINY’s current investment in Metabolon is valued at around $10.3 million with a cost basis of $7.2 million. In a future article, we’ll take a closer look at exactly what Metabolon does and the progress they’ve made.
TINY is trading just 10% away from its 52-week low and at a significant discount to NAV. Any successful liquidity event for Metabolon or Adesto could have a significant positive impact on share price, as could an appreciation in publicly traded Enumeral. With TINY’s past track record of dismal share price performance, such an event is needed to validate that their business model can create shareholder value over time.
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