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Harris & Harris Group, Inc.
Is TINY a Bargain?

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By spookysquid
January 28, 2008

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Is TINY a good buy now?

At the time of this writing (10:45, 25 Jan 08), TINY was selling for just over $7 a share. That's 50% off of the 52 week high. Maybe it's time to take another look at some of the basics and see what, if any, value is in there.

Market Cap: $166.66 MM
Shares Outstanding: 23,271,858*
Net Asset Value: $132.44 MM**
NAV P/S: $5.69
Book Value: $63.68 MM***
Book P/S: $2.73
Assessed portfolio value: $69.27 MM***
Port P/S: $2.97

Difference between Share price and estimated NAV per share: $1.41

*A 10.7 percent increase in share count, also known as dilution, over the trailing 9 months.
**Includes cash, govt securities, and estimated portfolio value
***http://www.tinytechvc.com/newsite/PDFs/q32007.pdf

So is it a bargain?

At this point, TINY still has a premium valuation of over $34 Million, assuming that they have valued their portfolio correctly. This assumed value proposition brings up a couple of interesting points. First, we know that many (most?) of the companies currently assigned a value will turn out to be worthless. Second, hopefully one or many of the remaining company will turn out to be worth more than estimated at the time of IPO (this leads to a follow on discussion further down). Third, ignoring the first two, why would we (the market) value their portfolio differently from how the company itself values it? In other words, they've said their portfolio companies are worth a net of just over $69 Million. Why assume anything but exactly that? Why value them an extra $34 Million above that? Fourth, what is the cost of operations over the period of time that it takes to start unrolling tier portfolio in a (assumed) profitable manner? We'd need to know how long until they went to market to answer that, but the implication is that Zero dollars will be coming in between now and then, thus further reducing the Book Value even further. So the question is not why the extra $34 MM, but why the $34MM + Operating costs (which have been steadily ballooning over the last year)?

The follow on question to number two is "how long"? How long until they come to market? We care about the answer because of the time weighted value of money. If it takes another five years, then we need to expect at least another 75-100% in NAV growth in the meantime. Otherwise, it doesn't matter if TINY's port is really worth $500MM if you have to wait twenty years for it to unroll. Just in case I haven't put too fine a point on this, there are many in the press who are currently predicting a recession. We've discussed this here before: (http://boards.fool.com/Message.asp?mid=24051147&bid=104329, http://boards.fool.com/Message.asp?mid=24053726&bid=104329)

So, without having spent too much time on this, even at $7.10, I'm hesitant to say TINY is a bargain. If nothing else, the directors of TINY have told us two things very clearly:

-They think their portfolio is only worth $69 MM.
-They have every intention of continuing to dilute the share base in order to raise money, thus requiring even greater long term growth in order to be worthwhile.

Consider yourself properly warned.

-spookysquid