Can you really “Own 28 of the World’s Most Exciting New Tech Companies for just $3.10?”

by Travis Johnson, Stock Gumshoe | March 14, 2014 5:41 pm

Checking in on a Microcap Millionaires Teaser pitch for the Friday FIle

The most optimistic answer to that question is, “sort of, but it’s $3.75 now.”

This week for the Friday File I don’t have any great epiphanies to share (that’s probably a relief, I’m sure, they tend to be wrong) … so I thought I’d check out someone else’s big idea, in this case the latest teaser pitch from Agora Financial for their Microcap Millionaires service.

And it turns out that this happens to be a stock I’ve owned in the past (the distant, distant past), and that I have a few call options on because of my relatively uninformed, speculative thought that the biotech and tech craze could get them a quick and dirty payday or a spike in valuation at some point soon.

I haven’t written about the stock in these pages, I don’t think, and I wouldn’t necessarily recommend it based on any fundamental analysis — but it’s the kind of stock that could get a big payday if luck strikes. It’s a small bet on my part, so don’t buy it on my account.

But I should explain what the stock is first, right? Well, it’s being teased as “the way to own 28 of the world’s most exciting tech companies for $3.10” … and in other email intros to the ad I’ve seen it teased as a way to buy “Alien” technology for 11 cents (that’s just simple and misleading math — simplified, 28 companies into $3.10 means you get each one for 11 cents … they aim to buy substantial positions of 8-10% of an early stage company, but in many cases their ownership is smaller than that).

And the name? Well, I can just tell you the stock without burying the lead, since you’re my favorite people — the stock being teased by Thompson Clark for Microcap Millionaires is Harris & Harris (TINY).

Here’s how they describe the stock, to give you an idea of the sales pitch:

“With one click of your mouse you could set yourself up to profit from:

That’s followed by a spiel about how exciting it can be to invest in microcap tech companies, with a long list of 20 or so huge gainers from the last year that racked up returns of 200-500% or more (many of them biotech stocks, naturally, given the huge biotech boom of the last year or so) … they don’t actually go on to say that they picked those particular stocks, of course, but those are the kinds of stocks they’d like you to think they can recommend for you.

Then Clark goes on to tease a couple of the 28 companies that you’d be buying with this investment:

“You’ll have the chance to scoop up profits from a company that has successfully found a way to create real, usable crude oil without drilling a single new hole in the ground.

“In just 30 minutes, they’re able to accomplish what nature takes 300 million years to do.

“The U.S. Navy has already committed to buying 450,000 gallons of what we’re calling ’30-minute oil.’

“And United Airlines is in, too. They were so impressed with a test run of this fuel, they’ve signed an agreement to purchase 20 million gallons.

“According to my calculations, you could make up to five–nine times your money with this move.

“And of course, this breakthrough “30-minute oil” isn’t all your $3.10 will get you into…

“You’ll also have a stake in a firm that’s about to revolutionize everything from the car you drive to the medicine you take to feel better to the cellphone in your pocket.

“This tiny firm’s technology could cure disease…pave the way for robotics to finally take off…and end climate control fears forever.

“Their breakthrough has already garnered the attention of some of the world’s largest companies — Lockheed Martin, Google and Amazon.

“Even the CIA has its eyes set on this tiny tech firm’s radical technology.

“610–983% gains on your money on this single investment aren’t out of the question.

“And those are just TWO of the 28 companies you have in front of you today. Just TWO of the ways for you to turn a very small starting stake… into windfall profits.”

I won’t go through every example or idea they pitch in the ad (if you want to read the transcript of their pitch, it’s available here[1] at the moment), but the different technologies being developed by the companies in TINY’s portfolio are described as plays on:

And interestingly enough, they say they’re limiting the signups to this deal at 50 people (at $3,000 each, that still works out pretty nicely for them), and that unlike almost every newsletter offer you’ll see of this kind, they’re not offering refunds — so they don’t want you to sign up, learn about their special top secret stock, then cancel for a refund. Other publishers facing this problem have instituted a 10% refund fee, but Agora’s going all out with “no refunds” on their $3000 offer here.

We, of course, offer refunds cheerfully for our $49 members — and for those same folks, we can offer you the name of the company and the ticker symbol and explain it a little bit, though I can’t promise that this will be $3,000 worth of research beyond that.

TINY is a venture capital firm that has classified itself as a Business Development Company (BDC) — BDC’s are usually lenders to midsize businesses, and they use the BDC structure to pay large dividends and pass through taxes to shareholders, but TINY hasn’t paid a dividend in more than a decade and is much more of an early stage venture and seed investor.

They have been around for 30 years, and refocused themselves on nanotechnology (thus the “TINY” ticker symbol) about 20 years ago, and have more recently, in the last four or five years, been narrowing their focus to biology and biotech — particularly on companies that offer some synergy between IT, nanotech, engineering or other technologies and biology (they call this guiding idea “BIOLOGY+” now).

Which is why I was thinking that the current biotech mania might be a reason for them to get opportunities to IPO some of their portfolio companies and get some spiky returns, which is why I have a few call options on the stock (September $5’s, if you’re curious) — that does NOT mean I think you should go out and buy options, or buy the stock, I’m just sharing the speculation I’ve made.

Because let’s be hones: TINY has been, over the years, a mostly terrible stock — they’ve had periods of enthusiasm which light up the shares on occasion, when trends go their way or when one of their portfolio companies generates a huge return on an acquisition or an IPO (10 of their portfolio companies have gone public in their history), but when their companies aren’t making headline-generating progress or getting bought out or talking about going public, there isn’t much to lift the stock. These aren’t, for the most part, companies that you can value very easily, they’re mostly early-stage companies that could very much be hit or miss, so the argument is that by buying a portfolio of 28 such companies your chances of losing everything in a bad week are much lower … but that doesn’t mean you can’t lose 75% of your value in a decade as TINY has.

The shareholder letter that explains their “Biology+” strategy is here[2], and that’s a part of the reason I’ve taken a flier on the options — the options were relatively inexpensive because TINY hasn’t done much for many years, but as we reach what might be a blowout phase of the biotech bull market investor mania could always send one of their portfolio stocks into the headlines. No, that doesn’t make it a smart investment … like I said, it’s a flier.

I do generally like TINY’s model, democratizing venture capital — but venture capital companies lose a lot of money, too, when things don’t go their way for a while…. until they happen to get in early on the company that becomes Google, or Facebook, or Amgen. It is a business where 99 writeoffs are paid for with one huge win. TINY has held on to some publicly traded companies in which they were early investors, like Solazyme (which you might remember has been heavily touted by the Motley Fool lately[3] — TINY invested in Solazyme in 2004, and got a substantial boost from that company’s 2011 IPO, but TINY stock is down by 30% since the IPO), and that has generated income as they’ve presumably sold some shares, but such value realization tends to be quite lumpy, so for the most part the valuation of the company is based on your assessment of what their portfolio is worth … with the realization that their overhead costs run something like $8 million a year, so they have to generate that much in returns in order to avoid losing value over time.

TINY will be releasing its quarterly earnings next week, on March 19 according to Yahoo Finance, and we’ll have a somewhat better idea then of what their self-reported net asset value is, but that net asset value as of the last quarter[4] was a bit over $4, including shares in publicly traded companies, cash, and — this is the bulk of it — their assessed valuation of the non-public companies in which they are invested.

So right now, the stock is trading at roughly a 10% discount to what they think their portfolio is worth. That might make it reasonable to nibble if you think, as I do, that biotech enthusiasm might give them a higher profile and a premium valuation at some point in the near future, but there’s certainly no guarantee that their assessment of the value of their venture investments is accurate or will rise (their portfolio has, in fact, fallen sometimes … as of last quarter, it was pretty much flat for 2013, up less than two percent). You can browse their portfolio companies here[5], Solazyme was the only one I’d ever heard of before.

This is a very small company, and I’d say they need a “win”, so I suspect they’ll be very optimistic about their bio investments when they announce their quarterly results, and will be cheerleading in April when they have a “portfolio day” showcasing the companies in which they’ve invested … but it’s clearly risky and the company can have long periods of weak performance when they don’t get those big “wins” in their portfolio, and it can trade at a substantial discount to its net asset value or book value for a long time. It’s also very small, with a market cap just over $100 million, which is why I didn’t want to write about it for all of our free readers and get the stock all jumpy — it’s clearly not a great investment if you look at the chart, they’ve run through a lot of cash without any brilliant returns in recent years, but there is some potential if any of their portfolio companies do well.

In case my writing about this company has any impact on the call options I own, I promise, as usual, not to trade the stock (or sell those options) for at least three trading days … but I don’t know that I’ll hold them forever, since I’ve told you about this position I’ll be sure to let you know if and when I sell it, but it’s a ridiculous speculation and the options are far too illiquid for me to suggest them to anyone else so please don’t dabble in them just because I did. Does that sound schoolmarmy enough for you?

Have a great weekend, everyone!

Endnotes:
  1. it’s available here: http://research.agorafinancial.com/research/html/mil_excitingtechs_0314/
  2. shareholder letter that explains their “Biology+” strategy is here: http://files.shareholder.com/downloads/TINY/2653959571x7412418x695401/259C6E73-8377-4A19-A334-517FB157CF56/2013-10-8_BIOLOGY_shareholder_letter.pdf
  3. has been heavily touted by the Motley Fool lately: http://www.stockgumshoe.com/reviews/motley-fool-hidden-gems/revealing-the-fools-silicon-valley-oil-superstar-1-company-pulling-profits-out-of-thin-air/
  4. as of the last quarter: http://ir.hhvc.com/secfiling.cfm?filingID=1144204-13-60579&CIK=893739
  5. browse their portfolio companies here: http://www.hhvc.com/portfolio

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