Nantero Case Analysis

1. What aspects of nanotechnology make it attractive for VC investment?

-The potential benefit of utilizing nanotechnology to hard-goods is huge, since the technology is a set of enabling tools and processes for manipulating matter that virtually all hard-goods companies can exploit in some fashion.

-Especially in semiconductor industry, because the Moore’s Law is facing boundary by using transistors, finding an alternative would be a significant breakthrough and could replace everything from existing products such as flash memory.

- The semiconductor market is huge and kept growing. The global sales in 2004 is more than 200 billion – great value that nanotechnology could capture.  

2. Suppose Nantero elects to pursue the fabless model and to accept Zeus’s terms. What is the true pre-money valuation of Nantero implied by Zeus’s proposed terms? 

-By using Black Scholes, the pre-money value of Nantero turns out to be $40.5million

-This calculation came from an idea that while we don’t know the pre-money value of Nantero, we can get that by using the option pricing model from Black Scholes.

-Since the aggregate preferred stock is $46million, the VC would obtain the face amount of preferred stock in case of liquidation when the firm value becomes more than $46million. = SlopeA

-Also, by assuming the common stock is 46million, the preferred stock would be converted to common stock when the firm value becomes more than $92million. = Slope B

-The slope A and B can be shown by the calculation below.

Series C $30million =

(Firm value – Call option ( S = Firm value, K = 46million, T = 5, Rf = 3.92% (continuously compounded), Volatility = 33%)  ) ←Slope A