Harris & Harris Group: trading 24% below NAV it’s priced for strikeouts, but home runs are possible.

Nov 30

Harris & Harris Group: trading 24% below NAV it’s priced for strikeouts, but home runs are possible.

Harris & Harris Group (NASDAQ: TINY) is a publicly traded venture capital fund that builds transformative companies from disruptive science.

–that’s the stated objective anyway

Let’s face it, venture stage investments are risky, not every swing is going to be a home run. Over the years Harris & Harris has struck out many times; but to be fair, swinging for “transformative” and disruptive companies is an admirable goal that won’t be achieved 100% of the time.

What’s a respectable batting average for early stage investments you ask? According to CEO Douglas W. Jamison: “You’re doing very well in early stage investing if you make money on a third of your investments.”

Regardless of the scorecard used, undoubtedly, USA Inc. would be better off having more Harris & Harris type investors, and fewer of the variety working on the next great app or social networking website.

Harris & Harris Group’s investment niche: BIOLOGY+

TINY - Biology+

Wait for it…
Throughout its trading history, which dates back to the 1980’s, TINY has traded at multiples far exceeding net asset value (NAV). But recent history has been less kind. A psychology of short-termism doesn’t jive with owning TINY. Today’s speculators want their rewards for holding stock now, not later.

Additionally, Harris & Harris Group’s capable management team (roster of PhD’s) has not produced the home run that patient shareholders have been waiting… waiting… and waiting for. It wouldn’t surprise me if many of TINY’s most diehard, balls to the wall believers gave up a long time ago.

Their selling has helped perpetuate the discount to NAV at which TINY is valued, 24% as of this writing.

It has been a while since Harris & Harris Group’s last home run, but the rules of venture capital say the next one is only one swing away. Unfortunately, we don’t know which portfolio company it will be or when it will happen again, if ever.

The good news is that Harris & Harris has hit home runs (as well as doubles and triples) on more than a few occasions in the past, so the odds of it hitting another one should be better than an unproven VC firm with no track record of success.

Here’s two examples of what Harris & Harris Group’s prior home runs have looked like:

Owning shares of TINY (unless past isn’t prologue) is a practice in patience, discipline, and faith. One must believe that Harris & Harris Group’s roster of PhD’s will ultimately identify more winners than losers, and hit the occasional hanging-curveball out of the park when its presented to them.

If religion isn’t your thing, take a hard look at what the heavy hitters (today’s household names and rich folks) are doing with their money. Perhaps success via association will rub off on us/TINY. Names such as D-Wave, Metabolon, HZO, Ag Biome, and Adesto (a few of TINY’s holdings) have been endorsed by, sold products to, or received investments from Google, Lockheed Martin, Monsanto, Amazon’s Jeff Bezos, The CIA, NASA, Time Magazine’s cover page, and many more.

TINY - Dwave

–TINY is one of few liquid and diversified investment vehicles I know of by which Joe Sixpack can play alongside the major leaguers

Breaking Harris & Harris Group’s portfolio down piece-by-piece in terms of total value and per share equivalent:
In other words, when buying TINY, this is what you get, as well as how much you’re paying for it.

Of course, prospective investors will be interested in learning more (and sharing enlightened findings with PSE) about each of TINY’s investment holdings, listed below…

1. “Primary Liquidity” (cash, govt. securities, and receivables) = $24.6M or 78 cents per share
2. ABS Materials = $1.5M or 5 cents per share
3. Produced Water Absorbents (a spinoff from ABS Materials) = $8.4M or 27 cents per share
4. Adesto Technologies = $17.2M or 55 cents per share
5. AgBiome = $2.9M or 9 cents per share
6. D-Wave Systems = $8.4M or 27 cents per share
7. HZO Inc. = $9.2M or 29 cents per share
8. Metabolon = $10.3M or 33 cents per share
9. Bridgelux = $3.2M or 10 cents per share
10. Cambrios Technology = $3.4M or 11 cents per share
11. Ensemble Therapeutics = $4.1M or 13 cents per share
12. Molecular Imprints = $8.3M or 26 cents per share
13. Nanosys = $4.1M or 12 cents per share
14. Nantero = $3M or 9 cents per share
15. Champions Oncology (OTCMKTS: CSBR) = 3,099,651 shares held
16. Enumeral Biomedical (OTCBB: ENUM) = 7,966,368 shares held
17. UberSeq, TARA Biosystems, SynGlyco, EchoPixel, Ensemble Therapeutics, OpGen, Senova Systems, ProMuc, Cobalt Tech, Mersana, NanoTerra, OhsoClean [collectively] = $12.3M or 39 cents per share

*all values taken from latest 10Q, September 30th, 2014

**using share price of $2.91 / Market Cap. $91.5M

Bottom Line: At a 24% discount to NAV of $3.85, the stock should be discounted enough that Harris & Harris can strike out a few more times before hitting the home run that propels its share price out of its decade long downtrend. Its cash position of $24M allows them to keep swinging aggressively at the right pitches.


Disclosure: author is long shares of TINY