Douglas Jamison – Chairman and Chief Executive Officer Daniel Wolfe - President and Chief Operating Officer Patricia Egan - Chief Financial Officer and Chief Compliance Officer

Robert Littlehill - JPMorgan Gerald Tweddell - Tweddell Goldberg Zach Liggett - Financial and Investment Management Group (OTC:FIMG) Tony Pollock - Aegis Capital

Good day, ladies and gentlemen, and welcome to the Harris & Harris Group Fourth Quarter 2014 Shareholder Update Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for today’s call, Mr. Daniel Wolfe, President. Sir, you may begin.

Thank you very much. This presentation may contain statements that are forward-looking in nature relating to future events. Statements contained in this presentation that are forward-looking statements are intended to be made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect the company’s current beliefs, and a number of important factors that could cause actual results to differ materially from those expressed herein. Please see the company’s Annual Report on Form 10-K as well as subsequent filings filed with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties associated with the company’s business, including, but not limited to, the risks and uncertainties associated with venture capital investing and other significant factors that could affect the company’s actual results. Except as otherwise required by Federal Securities laws, Harris & Harris Group, Inc. undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. I’d now like to hand it over to Doug Jamison, CEO.

Thank you, Daniel. I’d like to do two things on the call this morning. I’ll start it with a general overview, presenting a picture of the company and then going to turn it over to Daniel to talk a little bit more about recent volatility and valuation. So we’re going to take a little more time perhaps walking through some things today than we normally do, but we think it’s appropriate. So thank you all for joining us this morning. Investors have seen a series of announcements recently and I would like to begin this call by providing a brief picture of where I think we are at currently. First and foremost, we have an exciting portfolio of companies. Many of you would argue it is taking us too long to demonstrate progress or exits in these companies. However, it is difficult to deny that many of these companies are leaders in their respective fields. Two long time portfolio companies, Mersana and Nantero, recently raised $30 million plus financings to position them for venture exits. Just want to stop for a second and we don’t speak a lot about Mersana and Nantero, but again to show progress, Mersana $35 million financing led by NEA with some other new investors coming into it, David Mott is the Chairman, NEA is probably one of the most well-respected venture firms in the US, and Anna Protopapas, who is ex-President of Millennium, joined as CEO. Clearly, Mersana is making progress in its antibody drug conjugate technology as it drives it into the clinic and we think that this speaks a lot about the future. Nantero, again a company we don’t speak about often, but it has an undisclosed strategic investor who is the majority investor in their $30 million plus financing as well. So again, these companies are raising capital, their attracting the best talent, the best investors to them as they begin to position themselves for exits. Another one D-Wave continues to lead the world in quantum computing, a market that is being validated by the entry of Microsoft, by Google, by IBM. D-Wave closed investments of over CAD$60 million at the end of 2014. Adesto, Metabolon, AgBiome and HCO continue to attract attention demonstrate growth that we believe could meaningfully impact value. We believe we have multiple companies capable of generating venture-type returns in our existing maturing portfolio. We believe these returns, if they occur, will meaningfully impact NAV and stock growth. And by meaningfully, I mean dollars per share, not cents per share. And we believe many of these more mature companies require little future investment dollars from us. Second, we believe our portfolio in the areas we are now investing in our positioning us well for critical high-growth areas of the next decade. Probably the most challenging part of building early-stage companies is to anticipate the main technological and market trends five to 10 years into the future. Adesto and HCO are investments focused in the emerging growth area of Internet of Things or IoT and our timing currently appears very fortuitous in both companies, unlike Coveo where we are in the right market but a little too early. Enumeral Biomedical was able to raise capital, unless publicly, based largely on current and sustained interest in immuno-oncology companies. Our overarching technology could themes remain Biology+ investments, investments in interdisciplinary life science companies where biology innovation is intersecting with innovations in areas such as electronics, physics, materials science, chemistry, information technology, engineering and mathematics. Within this broad thesis, there are several technological and market trends that we believe should be conducive for outsized investment returns in the mid and long-term. The slide we have up on the board identifies five fields within Biology+ that we are actively involved with and where we are continuing to look for future investment opportunities. The first is machine learning; machine learning is a scientific discipline that explores the construction and study of algorithms that can learn from data. Such algorithms operate by building a model from example inputs and using that to make predictions or decisions rather than following strictly static program instructions. It is closely related to computational statistics and includes within in deep learning. We believe machine learning is beginning to penetrate data-driven businesses in the life sciences, as life licenses continue to adopt insights that will come from the application of computational statistics to this field. This new knowledge will lead to better health care outcomes, more personalized medicine and more sensitive and specific diagnostic decision making. EchoPixel, Uversec and Metabolon are all examples in our current portfolio. Additionally, even more powerful algorithms can be processed with D-Wave’s quantum computing system, which is a natural tool for statistical sampling and advanced processing of deep learning problems. The second field is the microbiome, the microbiome is defined as the totality microorganisms in a particular environment, rapidly developing sequencing methods and analytical techniques are enhancing our ability to understand the microbiome, the human, the plant, or the built environment microbiome. By understanding the environment of these systems and how the microorganisms within them interact with the host, we can impact human health, plant vitality, and the environment we reside in daily. AgBiome, Metabolon, ProMuc and Filogen are all examples for interest in the microbiome. The third area is ag-tech. It is predicted that the world population will be over 9 billion by 2050 and that 60% more food will be required to feed this population. In order to meet these food demands, the agricultural industry will need to become much more efficient and productive. Advancements in agricultural technologies such as crop protection, precision agriculture, plant-based protein sources, cell-sensing, synthetic biology, farmerobotics, and hydroponics will help achieve these goals. AgBiome, Metabolon and historically Solazyme are all examples of our interest in ag-tech. The fourth area is regenerative medicine. Regenerative medicine is a process of replacing engineering or regenerating human cells, tissues or organs to restore normal function. Regenerative medicine aims to harness tissue engineering, molecular biology and stem cell science to replace or regenerate human tissues or organs. The promise of regenerative medicine is to be able to fully heal the tissue and organs of patients that cannot otherwise be treated or recover from these diseases. TARA and Aragon, two recent investments, are examples of our interest in regenerative medicine. The first area is immuno-oncology. There are a number of therapies available to treat a variety of types of cancers; many of these therapies operate independent of probably the best source of a cure, the human immune system. Recent advances in the understanding of the human immune system allow for development of personalized and targeted combination therapies that partner with and /or control our innate ability to fight such diseases. This field is referred to as immuno-oncology and is producing some of the most efficacious therapies for cancer currently. Enumeral and historically BioVex are both examples. There are other fields we believe will hold the promise of home-run investment opportunities as well. As we make investments in these areas over the coming years, we will begin to identify and define these areas for our shareholders. So first was our exacting portfolio, second is the excitement in the areas that we are investing that we think are well positioned for the future, third I’ll discuss our limitations. Our limitations are our scale, our structure, our capital, and our access to capital in the current market. As we have said historically, we are limited by our existing capital. In our most successful companies, we become small participants as these companies raise large mezzanine rounds of capital as they are successful prior to exiting. This is being witnessed recently by D-Wave, Nantero and Mersana as well as some other upcoming potential financings. We believe meaningful capital will not be available to us until we demonstrate additional meaningful exits, which we believe will happen. But even once we have these exits, we must be well positioned to access capital to begin to reach an appropriate scale for our public model and for the types of investments we make. We are small and geographically diverse, we don’t have the focus story that attracts the attention of the investment community and the public that is critical for future access to capital. Thus, we have focused our resources more tightly to build the type relationships and the story necessary to be successful as our portfolio is successful. After having 12 full-time employees during the second half of 2014, we are now operating with nine full-time employees and we believe that will probably go to 8.5 or less this year. Our effort sourcing new early-stage opportunities in the life sciences will be focused on the Northeastern United States, with much of this effort focused in and around New York City. Our focus will be on building deeper relationships with researchers in the premiere research institutions and hospitals in the New York area, doing breakthrough research from which we can build transformative companies. We expect to further develop more closely our ecosystem in this area and use it to the benefit of Harris & Harris Group. The New York Accelerator and TARA Biosystems are recent examples of this focus. We have discussed both in previous letters to shareholders, one in the second quarter letter to shareholders and one in the third quarter letter to shareholders. New York is becoming a focal point for breakthrough research in the life sciences and ecosystem is a stronger as it has even been and it’s growing stronger. We believe we are well positioned to take advantage of this opportunity and an important region for science and for capital. Our West Coast operations will be reduced. As part of a partnership efforts, we have entered into an administrative service agreement with AutoTech management as disclosed in an 8-K filed on Monday afternoon. AutoTech has been organized to service the management company to a venture fund that will make investments in the transportation industry, an industry that is not currently within the investment focus of our company. As part of this agreement, we will provide advice on certain administrative services related to AutoTech for which we will be compensated. We will also have the potential to receive the small amount of carry or upside if the fund is successful. We are not investing our capital into the fund at this time. In connection with this agreement with AutoTech, Alexei Andreev, currently a managing director of the company, will join AutoTech as the managing director. Mr. Andreev will also remain with Harris & Harris Group, but as a part-time employee to us as the company as its representative on the board of directors of the company which he serves, all of which are West Coast portfolio companies. Although when we originally began our partnering efforts, we didn’t envision AutoTech as a partnership. With our current focus on Biology+ and a more focused view on the Northeast United States, we believe this partnership provides us the opportunity to stay connected to the tech community of the West Coast to continue to maintain close ties with Andreev and to have some upside if AutoTech is successful. It also reduces our expenses. Finally, at the end of 2014, we had seven independent directors. Schumacher resented the end of the year owing to medical reasons, Lucio Lanza, a California resident, a semiconductor technology expert and a retired West Coast venture investor resent recently. With our focus on East Coast institutions in the life sciences and our focus on managing expenses, we don’t intend to replace either directors at this time. We have five independent directors, all based locally in the north-east. Three are well connected in the life sciences, to our experts in financing compliance with backgrounds at leading investment banks and auditing firms. This puts us more in line with comparative BDCs. To the next part of our presentation, we thought it would be helpful to discuss some details on the valuation of our portfolio companies that make up the majority of our net assets. For this, I’ll turn it over to Daniel.

Thank you, Doug. As we reported in our annual report filed on form 10-K on Monday, our net asset value per share decreased to $3.51 as of December 31, 2014. The change in our NAV from the prior quarter is primarily related to changes in the valuations for portfolio companies. Recently, there are been some new sources of volatility in our values than existed in our previous quarters. So we thought it might be helpful to discuss the sources of this volatility and some general background on the process for valuing privately held securities. We are doing this in a series of blog posts, two of these blog posts are already complete and can be found in our website under the Blog menu item on the homepage. The series will contain two more blog that will be posted over the coming weeks. Just a refresher, our valuation process is according to generally accepted accounting principles for investment companies and involves the effort of a substantial portion of our team, complemented by input from our valuation committee of our board of directors and from a firm that specializes in valuations. We have historically seen volatility in our individual portfolio company values and overall net assets, primarily owing to changes in terms of new rounds of financing and discounts related to non-performance risk. In recent quarters, the following sources have played a role in volatility. Option pricing models are now being used to derive overall equity values and to allocate these values across different classes of securities of many of our portfolio companies. We began using option pricing models as part of our valuation process as of the end of the third quarter of 2014. As of the end of last quarter, we used option pricing models to value 12 of our privately held portfolio companies. In this quarter versus the prior quarter, OPM, as we call it, is often pricing model, related net write-downs of $1.2 million, the largest write-down was HCO. HCO decreased in value from $9.2 million in the third quarter of 2014 to $6.9 million as of December 31, 2014. This change of $2.3 million or $0.07 per share does not reflect a fundamental change in the business of HCO or rather the impact that liquidation preferences can have on the valuation derived through option pricing models. HCO raised capital during the second quarter of 2014 at an increased valuation from the prior quarter in an oversubscribed series 2 round of financing. It continues to execute on its business plan with its second year of revenue growth of over 200%. The largest increase in value of $800,000 was in Nantero, which as Doug mentioned, closed a new round of financing in early 2015 that included terms that resulted in an increase in valuation under the OPM methodology. We will discuss the importance of these examples of changes in value with respect to OPM and valuation later in this call. More of our companies are reaching a state of maturity where it is appropriate to calculate the value of the company based on a multiple to revenue. These multiples are derived from a set of publicly traded comparable companies and are therefore subject to the volatility inherent in the public markets. As of December 31, 2014, two of our top five companies by value including, our largest holding Adesto, were valued using this approach. The net change in value from the prior quarter of company’s value using market comparables as of this quarter was a decrease of $2.8 million, with the largest decrease of $2.3 million described to Adesto. Thirdly, we have at least one large investment, Enumeral Biomedical Holdings, which is publicly traded. Additionally, Enumeral is a micro-capitalization company that trades over the counter. These two factors increase the volatility and its stock price and the value of our holdings of the company. Volatility in our publicly traded positions of Champions Oncology, Solazyme and Enumeral Biomedical resulted in decreases in value of $2.9 million or $0.09 in NAV as of the end of the fourth quarter. Now, turning back to option pricing models, without it might be helpful to discuss how these models work and how the inclusion in our value valuation process introduces new sources of volatility and the impact changes in new rounds of financing have within these models. Option pricing models use call option theory to derive value of sets of classes of securities taking into account the financial rights and preferences of these classes of securities such as liquidation preferences, redemption rights, and dividends. This method treats common and preferred stock, in which preferred stock is the most common class that we invest in, has call options to derive the company’s enterprise value. This method of derivation of the enterprise value is often referred to as a back-solve, as a use of the price per share of the most recent round of financing to back-solve for the values of other classes of outstanding securities of the company. The option pricing model uses the following inputs in its calculation. The last round price per share, liquidation preferences, estimated time to exit, estimated volatility, the risk free interest rate and the outstanding capitalization of the company. This method contrasts with the common stock equivalent method. The common stock equivalent method derives the enterprise value of a company by multiplying the last price per share by the fully diluted capitalization of the company. While the common stock equivalent method was historically used to derive value, industry practice has shifted to the use of option pricing models, in cases where other methods such as multiple to revenue or discounting cash flows are not appropriate. So why is this shift important for our shareholders to understand? Simply put, option pricing models are highly influenced by the inputs above, particularly estimated volatility, estimated time to exit and the structure of liquidation preferences. We have robust processes to derive and support our estimations of time to exit and volatility that we will not discuss further on this call, but we do discuss in a little bit of detail in our blog post. We would instead like to focus on the effective liquidation preferences on option pricing model derived values. Liquidation preferences are common in most venture capital backed companies. They are generally negotiated to provide downside protection for the risk that a company is not successful. In some cases, it also provides for a way to increase the return on invested capital by having the initial capital return following participation in the distribution of proceeds, after the payout of liquidation preferences. These liquidation preferences can be stacked, meaning the last money in gets paid out first or they can be pari-passu, meaning that all investors participate at the same time regardless of who invested when or they can also be a mixture of stacked and pari-passu liquidation preferences. As of December 31, 2014, 16 of our portfolio companies have multiple classes of preferred stock outstanding with various sets of liquidation preferences. Within these 16 companies, 14 have at least one set of preferences that the senior to another class of preferred stock. Within this subset of portfolio companies, the most recent round of financing included a senior liquidation preference in 10 of these companies. Additionally, in the 16 companies that we are speaking about, at least one class preferred stock included a greater than one time multiple preference in five of the 16 companies. Here’s an illustration of what we mean. Let’s take a hypothetical portfolio company that raises three rounds of capital at progressively higher valuations. Let’s assume the capital invested in preferred stock with a one-time liquidation preference. Let’s also assume that the option pool in common stock start with a combined ownership of 50% of the company and get diluted over time. As you can see, liquidation preferences yield very different outcomes for enterprise value under option pricing models depending on whether those liquidation preferences are stacked or pari-passu. Now, let’s dive a little bit deeper and look at how the valuations of each class of stock change at the end of each round of financing with the same assumptions. This slide illustrates that even if successive rounds of financing are completed at increasing prices per share, earlier rounds of financing will not necessarily increase in value depending on whether liquidation references are stacked or pari-passu. It is important to understand that liquidation preferences generally do not survive if a company completes a public listing. In a public listing, generally all of the company’s preferred stock converts to common stock as is what happened with Enumeral Biomedical, Solazyme, NeoPhotonics, and other IPOs within our portfolio. Option pricing models do not model these types of events. Additionally, as companies mature we may shift from using option pricing methodologies to derive enterprise value to ones based on this count of cash flows or market comparables. Such shit could result in additional volatility as these inputs are used to derive enterprise values for those methodologies are substantially different than those used in the option pricing models. We encourage those interested in learning more about our company and our portfolio companies to look at the announcements regarding these companies to understand the potential for the ability of these companies to generate returns on investment. We note that the ultimate return on an investment may be materially different than the fair value derived as of any given particular date of valuation. I will hand the call off to Pat Egan, our CFO, to discuss the financial statements for the year ending December 31, 2014.

Thank you, Daniel. At December 31, 2014, we had total assets of approximately $112 million on our balance sheet. Included in our total assets is our venture capital portfolio which was valued at approximately $89.7 million versus its cost basis of $112.4 million as of December 31, 2014. Therefore, at year end, our venture capital portfolio was in a depreciated state of $22.7 million. We also held $20.7 million in cash and had no debt outstanding at year-end. At December 31, 2014, our primary and secondary liquidity was $29.6 million. Our net assets at year-end were approximately $109.7 million and our net asset value per share was $3.51. This was a decrease from our net asset value per share of $3.93 as of December 31, 2013. Turning to our income statement, for the year ended December 31, 2014, we had investment income of approximately $518,000 compared to approximately $471,000 in investment income during the same period in 2013. Our total expenses were approximately $8.4 million for the year end compared with approximately $8.5 million during 2013. These total expense figures include both cash and non-cash based operating expenses, such as stock based compensation. Stock based compensation expense has no impact to our NAV. Our total cash based on accrued operating expenses for the year ended December 31, 2014 were approximately $7.5 million as compared with $7.3 million during the comparable period in 2013. This yielded in net operating loss of $7.9 million for 2014 which was a decrease compared to our net operating loss of $8 million for 2013.

Thank you, Patty. So thank you all for permitting us to spend a few minutes on some of the more technical aspects of our business. In closing, before we open it to questions, I’d like to point to our attention to our website. Please use our website for information, it keeps you up-to-date on portfolio announcements, things we’re involved within the community, it contains the blog post, as Daniel mentioned, it contains letters to shareholders and our presentations. One note is EchoPixel, one of the more recent investments and one we haven’t discussed much was highlighted on Bloomberg Business. If you go to our website, you can access the link, they’re under the front page Portfolio Company News, it’s a very good interview. I’ll now open it up for your questions.

[Operator Instructions] We do have a question from the line of Robert Littlehill with JPMorgan.

There seems to be some momentum of foot in terms of the need for venture exchanges, obviously Congress is very aware of the need to trying to create a resurgence in innovation job growth in the American dream and try to support small cap companies and their investors. Do you have any thoughts along those lines?

I think I will take a stab at it and then Daniel may, this is a topic very near and dear to my heart. And in fact, I’m actually in the process of, I’m writing a book that will be published by Columbia Press on basically historical venture investing and venture investing in deep science, the diversity breakdown that occurred and what is necessary to bring that back. I think maybe my first statement would be I think it’s very clear to delineate, there are sectors of venture capital that are working very well. We’ve talked about them historically, the tech, the social media, the type of companies that pay a little bit money to start, you can reach a wide audience if there is a market and then you can figure out if there are revenue models you can attach to that that grow very rapidly. That is where the majority of venture dollars are now heading. However, if you look at the American science investing, 80% of all science investing by the public, which is a tremendous amount of money, looking to the future of American productivity to competitiveness et cetera goes into the physical sciences and the life sciences. And the venture dollar investing going in there has just been dropping precipitously. And part of the reason are the issues you see facing Harris & Harris Group. It takes more money, it takes a longer amount of time, there is a lot more uncertainty investing in those fields ad so people have fled from them. We believe that also creates opportunities as well, there are very few groups that are now positioned, that have the skill sets to be able to make these type of deep science investments, one of those groups is Harris & Harris Group. But it does take a long time to play out and it does take a lot of money with a longer time to play out. What we are seeing is two things. One, to be very clear, there is a wonderful resilience to, at least to, probably more to America than some other economies and societies that bounce back, so I think we are already seeing a bit of resurgence after the financial crisis people looking for risk, people looking to say want to do something meaningful and you’re starting to see more dollars come back. You have clearly seen a biotech revival on the public markets where people are willing again to bet on drugs that could have very large markets even with all of the risks of phase 1, phase 2, phase 3 clinical trials. I think you will start to see that in other areas. Really interesting groups like Google and Facebook, right, some of the largest newest emerging companies that probably have the lowest cost of capital because where their share prices are trading are moving outside traditional software and moving into hardware plays, right, and they are backing and they are sometimes buying some of the type of companies that we talked about today when you look at some of these emerging areas. I think you are starting to see an upswing in that both from a risk and a realization that you need hardware, you need deep science investing, you need to improve these areas if you’re going to be able to continue for the future. And think about what social media would be like if we still were operating under telecommunications structure of the mid-90s. You couldn’t do it. You couldn’t stream videos, you couldn’t use all of that, so you need those technologies underneath it. So we’re big believers in that. I think from my perspective, probably the biggest thing that could happen and the government is trying to do this, you have the Jobs Act which certainly is trying to move companies and find financing for them make it easier for these type of companies to do their business. I think the largest area is again the revival of the small IPO market. When it takes, when some of these deep science investments take 20, 30 years to play out, if you measure them against something that takes five to 10 years to play out, but ultimately over 30 years of the same value, it’s still difficult because most people don’t have the time horizon of that longer period of time. So you have to create a structure where you can pass the time between investors to the public markets. And clearly in the small public markets, financing sub-$50 million have disappeared after 2000 because a lot of regulatory and structural changes in the public market, we believe that bringing back some of those small IPOs is probably the single most effective thing you can do to revive deep science investing. Our efforts in New York City, clearly New York City has realized one, they want to diversify away purely from the finance and they’ve seen the uptick in [indiscernible] they clearly have bet on the life sciences, and put that ecosystem together. A lot of that ecosystem is based around how do we take the unbelievable discoveries coming out of places like Rockefeller University, Memorial Sloan Kettering, NYU, Cornell Wale, how do we take those and actually provide the translational dollars to take that R&D and actually bring it to the market. So I think there is a resurgence coming, I think we at Harris & Harris Group are well positioned for it, but it certainly much larger and much more important to the economy than just little Harris & Harris Group as well. comment, I think we at

Our next question comes from Gerald Tweddell with Tweddell Goldberg.

I’ve been a long time shareholder and sharing the concerns of many others, we’ve had one of the biggest bull markets in history, market has been on an escalator up and despite your best efforts, we seem to be on a treadmill and I know you’re talking about liquidity events that are more probable than they have been, my concern is even if we get liquidity events, the cash proceeds or the assets that you get seems to me that are going to be recycling those back under the treadmill that for better part of a decade has gone nowhere and I think that we should get some consideration in changing the business model, because I can’t see you anywhere around the closed circuit seem to be going nowhere, you have any comments on that?

I will take that, Daniel again if you have any comments you can add to it. I think that what we need to do to get off this treadmill, you call it, is we need to get some exits that are meaningful, meaningful both in growth rate provide us and the cash and capital to reinvest. And I think that the reason we stay with our business model is because we believe we have them in the portfolio. We tried to highlight them, we talk about what D-Wave is doing and companies like that. Unfortunately, they take a while and probably unfortunately they take longer than we would like. I think we would like to see D-Wave go to the public markets sooner rather than later, we think that that story is going to be well received. Unfortunately, the largest investor in D-Wave is Goldman Sachs and Goldman Sachs has infinite amount of money to invest in it to keep it private and would love to bank it probably when it’s bigger. I don’t think it says anything to the ultimate success or unsuccess to D-Wave, but they have access to capital privately and a lot of groups will do that. Again, I look to like Hoover, right, Hoover is a company that traditionally would probably be public by now, instead they are raising money and most of the value is being described to private investors. Luckily, we are in that private investment ground. But I think that’s what we’re going to need to do that. I think when we talk about our portfolio, when I mentioned early on the AgBiome, the HCO, the Adesto, the D-Wave, the Metabolon, they are the type of companies we believe can get us off the treadmill. If you look at even just similar exits that we had in 2011 with – where we sold Solazyme shares and everything like that, when you look at some of the ownership positions in there, they provide much more growth potential than we’ve seen historically. That said, the difficulty you are seeing and the difficulty you are seeing in valuations is we’re not seeing as these companies progress, we’re not seeing their valuations move up. And I think that’s very frustrating both to us is the management and clearly to the shareholders. I don’t – it’s difficult with the use of more OPM modeling, you can do significant increase valuations, but because the liquidation preferences, you’re going to see valuations perhaps – depending on how the structure of those deals are done from a venture perspective, go up, go down, or stay neutral. So I think it becomes more difficult to understand the progressions or not. Although, if you do read the material we put out, I think there’s a lot of information this company is try to put out to say what’s happening, who is coming into them, it’s very different if you raised $4 million from insiders continuing than if you raised $35 million from a very large strategic investor or from one of the premier venture capital firms or in D-Wave’s case, from Goldman Sachs and an assortment of very large mutual fund investors. So again, that’s our bet. We’ve talked about our ownership and everything like that to increase it, we think there is a really good opportunity in deep science, we think we are positioned to that. But I definitely hear you, we have been on a treadmill for a long time. And if we don’t realize the returns in those portfolio companies or they turn out not to be as exciting, we think it will be difficult to get off that treadmill.

Our next question comes from Zach Liggett with Financial and Investment Management Group.

Just a couple of questions I have, one on 2015, given the cutbacks in staff, do you have a run rate you’re thinking about for expenses? That’s my first question. Number two would be, just given the cash that you do have it in the balance sheet, how much of that do you see as available for making add on investments or perhaps new investments versus how much you need to keep for just running the company? That’s the second question. And then are there any other sources of funds, could you take maybe some of the investments that are longer run in nature, or you maybe don’t consider as core, are those even sellable to deploy the funds into the things you are more excited about? And then the third question would just be you mentioned in the letter and I know you’ve talked several times and just the frustration with scale, and I’m curious what do you think the ideal size would be, the ideal scale would be for a company like ours here? And what are some of the things you are, maybe the board is discussing on how to achieve that scale that are not dependent on getting exits here in the next year, let’s say. Are there other ways to maybe achieve that by merging or figuring out some other way to get to the scale you’d like to be at? Those are kind of the three questions I have this morning.

That’s great. Daniel, the runway from our budget now for 2015?

We’re looking at probably somewhere between $6.5 million and $7 million. That addresses the first one. Secondly on investments, I’ve always pointed out, I think it’s on page 60 of the recently filed 10-K, under investments and current investment pace, there’s a chart that gives you our total incremental investments in a given year. It bounces around a little bit, I think as we looked at 2015, clearly our follow-on investments for some of our most mature companies us really decreasing rapidly. So we think it’s going to be a year where we put less money in follow-on investments. However, we do have some young investments that are starting to grow, there’s going to be some variability on how much we put in those, but that's probably the movement away from the norm as our most mature portfolio companies just don’t need. In the D-Wave investment, we participated in the first $30 million small amount and the next $30 million, it was taken by one group that was not really an opportunity to participate beyond that. So it’s not that we then chose not to, it really wasn’t provided to us. And of course, we just don’t have the dollars to be big contributors when you’re raising your $60 million. So I think you’re going to see us be clearly less than $14 million in 2014, we have some variability in some of the follow-ons for new investments and how fast those companies grow et cetera that we can control as well. The asset sale is an interesting one. Clearly, as we focus more on Biology+, the board and management has thought about are there ways to monetize some of these earlier investments that perhaps are not strategic to us going forward. The issue we face to be honest with you, we’ve done this a couple of times, we did this in earnest ahead of putting the credit facility in place is that we do in early stage of venture capital, the providers of capital that would imply these, it’s really in arbitrage, they can buy it in a big enough discount, they can take the risk that they can basically get out of itself and get the return that they need. And it ends up being, I think honestly, I’m looking at Daniel here, but it’s $0.30 or $0.50 on the dollar. Now, if you just value these things, at the last valuation or share price that went into it, what they paid, that can be potentially okay, but our valuations of course tend to take a lot more things into consideration when valuing them and it’s really hard to think you want to sell those for $0.30 to $0.50 on the dollar, especially when we don't have to put further investment into it. So look at a company like Bridgelux, Bridgelux has over $90 million in revenue, it’s not really strategic to us, it’s going to be a great investment return, although we think it can be an investment of return to us. But it doesn’t require any more capital, to stop at $0.30, $0.50 on the dollar, the dollar being what we value it, because it’s very because we’re a public company does not seem very prudent for shareholders going forward, be we continue to take all that into account because that scale is look is important. And then to address the question of what that scale is, I think that if you look in the literature, there is a great report by Kauffman Foundation. The ideal size ideal size venture return perspective in looking at what we do has turned out to be about $300 million to $400 million fund. I think that clearly we need to get this $300 million to $400 million investing in the deep sciences to be of the scale we want to be at. We think that some of that can come organically, we think that, we think that as it comes organically, putting ourselves in a position where we are attracted to capital sources to accelerate that would be the right thing to do, hence my earlier discussion today not only on what we believe are some of the potential successes, but on positioning ourselves so that as we start to see these successes, we’re also on the position as people get excited to attract some capital to us. And on the organic side, I just note, when you look at it, I realize that a lot of people are frustrated. We are unbelievably frustrated here as well, the last question on the treadmill, but I point yourselves, these companies are doing great things. They are raising great money, great investors are coming into it. We can certainly discount that, you can play Ping-Pong and take this out of the table that they are still a dream and you’re not going to realize it. But if you take the other side of that equation, right, and we’ve seen that. BioVex’s purchase of up to $1 billion, the first milestone came in at the end of last year. Solazyme, we sold most of our shares, I believe, to annual $600 million to $800 million market cap. If you look at where some of our companies are now, clearly D-Wave, the promise of D-Wave in the world’s first quantum computer, no one knows if it’s going to be successful, no one knows what the market size is, but I’m pretty sure if they are successful, we’re not talking of $1 billion, we’re talking multi multibillion, maybe tens of billions of dollars of value, that’s why Goldman Sachs is in it. That's why Fidelity is it. That’s why some of these groups are involved in it. I think if you look at the HCOs, the AgBiomes, the Adestos, the difference is they can be $300 million, $500 million, $600 million, not even $1 billion companies because of our increased ownership. You can start doing the math. If you look on our charts that we provide and take the range of ownership and do the math, they start to become significant and that’s I think the reason that if we can realize them, we’re off that treadmill. And unfortunately I realize it’s difficult for shareholders, the hardest thing about Harris & Harris Group is it’s really hard to understand if they are going to be those values or something less than that or really turn out not to be successful at the end of the day. And unfortunately that’s the nature of the power laws we invested in, but when they hit, one home-run can really do a lot to transform the company. I challenge you run ownership, run our ownership, it’s a small ownership, but run it at potential liquidity if you believe they’re going to be successful. It’s game changing to Harris & Harris Group.

I appreciate the color on valuation too, that’s quite helpful. Just a quick follow-up on that, that asset sales question, I mean, do you guys see yourselves ever on the other side of that equation in core areas you’re now focusing on where you’re getting shown paper at $0.30 to $0.50 on the dollar, things that the seller is consider non-core or maybe doesn’t see as a home run, but might still be a reasonable investment with that kind of a haircut?

Yes, we do occasionally see that, we’re in the venture market, people are doing different things. We have not – it’s the same reason that people will pay $0.30 to $0.50 on the dollar and why you would, usually you need – it’s a big investment for us at this point in time, so there are good opportunities, we could take advantage of probably if we are willing to write $3 million, $4 million, $5 million check, but that’s with where we stand currently writing that $3 million, $4 million, $5 million check is probably not what we wanted to do. And again, our experience has been, it’s just like ours, right, which is D-Wave could potential, I mean, their story is great, the things that are happening, I think they could be exciting IPO today, but with the capital that they have access to privately and the groups that are interested in and the work they are doing, they could also stay private for two or three more years and it’s been very, very difficult to predict that. Bridgelux is another one, we actually thought Bridgelux was going to exit an IPO up to two years ago, with some of the things happening, but they chose not to, they chose to do some other things and stay privately. So without real visibility into what was going to happen on the exit side, it’s hard to – we don’t have the type of capital that you can really do that in a meaningful way. If you did have that capital, it can be very meaningful. Interestingly enough, the groups that do this often want more than our position by the way. So they want to do it with a much larger magnitude of capital, so they say, hey, can I buy out a position worth $30 million because then I can turn my $30 million into X on top of that, that’s their business model and of course we usually don’t have a size that matches that, which means you have to go find other investors willing to be the same thing. And a lot of them are, because again, these companies don’t need capital.

Our next question comes from Tony Pollock with Aegis Capital.

So as a long-term frustrated shareholder, any thoughts on the board or the management’s part of just winding down and running the portfolio run-off?

Again, I can tell you our board over the last year, probably year and a half has had all of the conversations you would expect the responsible board to have, which is what is the best way to maximize value for the shareholders. And I think we have looked at raising additional capital, we’ve looked at perhaps joining hands with a group that is larger, we looked that joining hands with groups that are more our size, but together could we do something more powerful and we’ve looked at base case scenario what if you just cut expenses and used your cash to invest in the portfolio as needed and then just pass it out to shareholders over a period of time. So – and probably variations with each of those. I think that runs again, but as one would expect in any intellectual exercise with a base case and forward, and I think just to be sustained, the board has always gotten to the answer that it makes sense to continue the company and to drive that forward with the new investments and everything like that. So that’s the decision they’ve made, there is a lot of color underneath that to be honest with you, conversations of laying the portfolio run out are great. So you announced that and anybody want to be a public shareholder and trade the stock is out, you probably plummet the stock price and then it takes a much longer time to play it out and actually pass out the proceeds. I can tell you one thing I always look at. When I look at that base case scenario, I think the board and management always has to know that by continuing the business today, you believe you can return more to shareholders than you can in a base case scenario, because if you can’t, I think that’s your trigger point. And so again, the answer we’ve come to is we believe that you can. The other thing, going back to the previous question a little bit, is that we’d love to find a group that really saw value in our portfolio or anything like that that was strategic to us and do that, I can tell you from having been out in that world, there is no one willing to pay $5, $6 per share for our portfolio currently to play that out. I think that people look at it and they look and say hey, we’ll take advantage of this and so it’s a much lower number. When you start to look at the portfolio and the type of returns it can potentially generate, there is a very large delta between those numbers and what the portfolio can generate. So yes, the board has looked at it. No, we have not come up with a solution yet that we think drives more value to shareholders than the plan that we keep modifying and moving forward with. And again, a lot of these companies are late stage. A lot of them you can read about, a lot of them – it’s not us as 70% shareholders and no one else in the company and its our dream, I think that if you go out and look in the literature and look in the press releases, there is real value to some of these companies. The question is going to be when can we realize that value and when does it pass on to shareholders. And I understand that that’s a large concern for all of us.

I think also the concern is there are a lot of winners, but there are a lot of losers, and with the $67 million annual expense ratio that becomes – it doesn’t get the appreciation for the portfolio that one would expect as a stockholder.

My answer to that and we’ve had this conversation before and I’ve had it with others, we clearly have had that conversation at the board level as well. You see us making some changes and addressing some of that. I think it’s the nature of our game, I think in the shareholder letter, I wrote about peer deals book, it’s probably the best six or seven pages on our type of business and the power loss that exist. And I fully understand that it’s not for everybody, but if we don’t have big returns, if our returns – we build a company that takes time when we get the return that we got in the first pay out from Molecular Imprints, it’s not a viable model, but it’s not viable model at $1 million in expenses and it’s not a viable model at $10 million in expenses. You need the big returns and so we constantly monitor that. And you hear me talk D-Wave, but D-Wave is not the only one, there is HCO, there is AgBiome, there is Metabolon, there is Adesto that all seem to play in that and then there is some earlier ones that I’m just hesitant to say we know what their future looks like at this point in time. But those returns will dwarf it if they realize and I think what I would council everybody and what I certainly think about, I think our board thinks about, the management thinks about is if you don’t believe those companies are going to generate that type of return, it’s hard to hold Harris & Harris Group’s stock. If you go, they will dwarf the expenses and the losses. And that happens in every successful venture capital portfolio. The difficulty you’ve seen with Harris & Harris Group is just you don’t get a nice quarter to quarter annual increase, you’re on a treadmill, you’re on a treadmill, you’re on a treadmill and them boom, something hits. And the example I’d love to give is the – I think it was an excel partners, who is early investors in Facebook, it was the last deal in their fund. And the rest of the fund went nowhere and yet that one deal took them from being unavailable to raise capital to being one of probably the best returning fund over the last decade. And that stuff, I realize it, but it’s also the beauty of our business and it’s what we are and I don’t think we hide from that at Harris & Harris Group.

[Operator Instructions] I’m showing no further questions at this time. I’d like to turn the call back to Doug Jamison for closing remarks.

Very good. Again, I’d like to just thank everyone for joining us today. Again, please take the opportunity to read the shareholder letters to go and visit the website, I think there’s going to continue to be exciting things happening within the portfolio in 2015, clearly we’re looking for some potential liquidity events in 2015 as well. If you have questions, if you’re local and want to meet, we’re happy to do so. Sometimes being able to talk about the business, understand a little more detail is helpful, we are happy to do that. So thank you very much. Have a nice day.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day.