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Inside the world of M&A, IPOs, and Venture Capital

Justin Hibbard
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March 08, 2005

Memo to Wall Street: Thanks, But No Thanks

Sarah Lacy

A few weeks ago we did a special report on nanotech-- a word that always sparks a flurry of "Nanotech isn't an industry- it's a technology!" comments. (A warning to those of you: This story does talk about nanotech as an industry. Take a deep breath, count to ten, and keep reading. I promise not to make any bad puns like "It's a small market." Even I can't abide those.)

In this report, I wrote about the potential IPO market for the space, after the aborted Nanosys attempt to go public last year. There were a handful of companies that rose to the top of bankers' lists. These are real companies, making real products using nanotechnology. The prediction? At least two would go public this year, giving hungry investors who like the nano story something real to buy...finally.

Cross Nano-Tex off the list.

The Emeryville-based company just raised $35 million led by Norwest Venture Partners and Howard Hughes Medical Institute. Previous investors, including long time backer WL Ross & Co., also participated. Nano-Tex is the brains behind stain-resistant khakis at the Gap, Nordstrom, Brooks Brothers, and other retailers. They make the coating that gets sold to the fabric makers that in turn sell to these stores’ manufacturers.

As a private company, they won't disclose revenues, but sources I talked to for my original story handicapped it at north of $20 million a year. The company was profitable two years ago, but decided to start investing in marketing, sales, and yes, khaki R&D. This money will help with all of that. They recently announced a few products including a coating that helps fabrics resist static electricity-- the nemesis of every woman trying to wear a skirt and hose in the winter. I’d imagine that could play a big role in the company's desire to be involved in more end products for women and girls: The big spenders of the apparel world.

So why not use public money for all this? CEO Don Tice tells Deal Flow that all the attention was flattering, but the company wanted to focus on building the business, not deal with all the headaches and trappings of being a public company. He wouldn't elaborate on which ones, but other reluctant start-ups have cited increasing regulatory requirements of Sarbanes-Oxley, and quarter-by-quarter pressure by the Street. Unless you are Google and can make grand pronouncements like, "We'll keep investing in projects that may or may not pan out and won't give any guidance no matter how much you beg," it can be tough to be an innovative company that chooses investment in growth over profits.

That, and he probably got some pretty favorable terms. Tice says the round was four-times over-subscribed with 21 investors calling him and 11 term sheets.

Nano-Tex may not be the one to open up the markets for other nanos this year, but if Tice's discipline continues, you can bet a successful IPO won't be too far off.

04:17 PM

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