180 Degree Capital Corp. (TURN) Q1 2015 Earnings Call Transcript
Published at 2015-06-05 00:00:00
Good day, ladies and gentlemen, and welcome to the Harris & Harris Annual Meeting and First Quarter 2015 Financial Results Conference. [Operator Instructions] As a reminder, this is being recorded. I'd now like to turn the conference over to your host, Mr. Doug Jamison, Chairman and CEO. Sir, you may begin.
Thank you. So good afternoon, ladies and gentlemen. I'm Doug Jamison, Chairman of the Board and Chief Executive of Harris & Harris Group. I'll be chairing this meeting. I now call this meeting to order and welcome our shareholders and guests to this Harris & Harris Group 2015 Annual Meeting of Shareholders. A couple of apologies. First, I apologize for everybody who's been here before, which is all of you, except for the new ones. The script, I'm going through the script year-after-year-after-year. I constantly ask if I could hand it over to somebody else to walk through the script, but I will be doing that. I also apologize for holding the shareholder meeting on a Friday afternoon in the summer. It just so happened that we were going to hold a conference this week and the conference from being available was today 3 to 5, we took it. We thank Proskauer because we don't have to pay for this room, but that's why it happened. In the future, we won't do a Friday afternoon in the summer. Again, thank you, Proskauer. Also here today, we have a lot of, I think, some of associates of Proskauer. So thank you, all for being here today as well. Before making introductions, I'd like to review the program for the meeting. We will begin by covering the business of the meeting, as outlined in the proxy. The formal business of the meeting will be followed by an informal portion of the meeting while we wait for the votes to be counted. We are very happy to be able to include the informal portion of the meeting, which is a presentation of the road map forward for Harris & Harris Group and where we will be focusing our efforts in the present and in the future. We would like to ask you to hold all questions and comments to the designated question and comment period, for which there will be 2. One will take place during the formal part of the presentation and will include the 3 proposals on the agenda. Please restrict questions and comments at that time to the 3 proposals. The second question and comment period will follow the presentation and it's the appropriate time to ask questions not related to the agenda items. We ask that all questions and comments be directed to me for response or referral to the appropriate officer or director, and that you be as brief as possible to allow everyone who wishes an opportunity to participate. Also, please identify yourself before speaking, tell us if you are a shareholder or a proxy for a shareholder. If you are a proxy for shareholder, please identify the shareholder. I'd like to introduce our directors and officers who are present today, please stand when I call your name. Richard Shanley, Lead Independent Director; W. Dillaway Ayres, Dill; Dr. Phillip Bauman; obviously, Stacy; officers Daniel Wolfe; Misti Ushio; Patty Egan; Mary Brady; and Blake Stevens. Ceasar Ceveneti [ph] has been designated the inspector of elections and is present today. The inspector has signed her oath and the secretary has been instructed to file the oath with the records of this meeting. Now I would like to introduce Rich Shanley, who's our Lead Independent Director and has been Chairman of our audit committee since 2008 and will speak on behalf of the Board of Directors. Rich became Chairman of the Valuation Committee in March of 2015, and after this meeting, Stacy Brandom will replace Rich Shanley as the Chairman of the Audit Committee. Rich?
Thank you, Doug, and hello, everyone, including all our new observers. I am Rich Shanley, I'm the Lead Independent Director of Harris & Harris Group. And as I have done for the last couple of years, I'll be making some opening remarks. The first area I want to cover is that I want to provide a bit of perspective on the governance of your board. As Lead Independent Director, I chair the Independent Directors Committee, which meets in face-to-face sessions with and in executive session without management during the course of each year, several times. We discuss long-term strategy and we continually discuss management's approach to overall long-range planning, we really do. Our meetings are frank and generate real discussions and analysis of management's plans and approaches. As Lead Independent Director, our CEO, Doug Jamison, and I are in touch through a planned series of phone calls and meetings as well as ad hoc contact in the event that any issue would arise that needs immediate attention. The second thing I'd like to cover is, really, one of the most important functions of the board of a company, which is structured as a business development company such as Harris & Harris, is that the Valuation Committee, which is composed of all the Directors except Doug, in other words, all the Independent Directors, we meet on a quarterly basis, we take an in-depth look at the valuation of each of the investing companies and the portfolio of Harris & Harris such that we're able to conclude that those valuations are appropriate under generally accepted accounting principles, or GAAP. Beginning in April of -- in March of 2015, I took over as Chair of Valuation, as Doug had mentioned. So in addition to the quarterly call involving the entire Valuation Committee, as Chair, I work closely with management during the process of preparing the quarterly valuation documents and I also participate in a series of calls with management as well as with outside valuation consultants in the determination of the values of each of the investments in the portfolio. A few comments on the relevant GAAP for the valuation of privately held non-traded securities, such as the majority of those in our portfolio. The accepted GAAP has been and continues to evolve in terms of valuing such companies. The preferred -- currently preferred method gives extensive weighting to the order of preferred stock liquidation preferences such that value is often skewed toward the last round invested. Now Daniel Wolfe will explain this phenomenon in greater detail later in the meeting, but suffice it to say that this valuation method, while it's internally consistent and more easily audited than more qualitatively based methods, yields valuations, which often appear at odds with the valuation which a sophisticated businessperson might otherwise subscribe to, given investment. While any differences in ascribed valuation will ultimately be resolved by the eventual disposition of the individual investment. The fair value at any given date of valuation may be materially different from the ultimate value that's realized. And then commented on the accounting, I'd also like to comment on our portfolio. We completed a multiyear transformation of the portfolio, which has resulted in fewer investments but greater ownership of each investment. We've also focused on companies in what we call the BIOLOGY+ arena, which is companies which link biology with another discipline. As management will more fully describe, a result of this portfolio re-weighting and greater ownership, we believe there are several investments in our current portfolio with the potential for exciting returns. My last point relates to the value of TINY's stock. As I stated in the past remarks, we, as a board, have no control over the value that the stock market gives to Harris & Harris stock. All the independent directors are substantial investors in the stock, and additionally, we continue to be ongoing purchasers of H&H stock, with the majority of the independent directors electing to use at least half of the regular board cash compensation we receive from the company every year to buy additional shares through an automatic buying plan. I also want to note that management team has the majority of their net worth held in Harris & Harris stock. Because the nature of Harris & Harris' investments in early-stage companies very often involve additional financings, buyouts, mergers and when the market allows, IPOs, directors are, in many instances, privy to nonpublic information and therefore, very often, not free to make open market purchases of Harris & Harris stock at points in time when we might otherwise desire to do so. Personally, based on what I've learned about our portfolio through my work on the board, I continue to be excited by the prospects of your company's portfolio and the diversity of cutting-edge technologies it encompasses. Thank you for your attention.
I've been informed that there's a quorum present for the transaction of business. Proper notice of this meeting was duly mailed on or about April 30, 2015 to all holders of record on April 9, 2015, and the affidavit of the transfer agent confirms such mailing. The secretary will please file the affidavit with the records of the company and a copy with the minutes of this meeting. April 9, 2015 is the record date for the voting of shares at this meeting. As of the record date, the company has 31,280,843 shares of common stock outstanding or 32,442,339 shares, including restricted stock with voting rights. We will now proceed with the formal business of the meeting. At this meeting, shareholders are voting to elect 6 directors of the Board of Directors to serve until the next annual meeting or until their respective successors are elected. The 6 persons nominated by the Board of Directors are: Dill Ayres; Phillip Bauman; Stacy Brandom; Doug Jamison; Charles Ramsey; and Richard Shanley. The Board of Directors recommends that the shareholders vote for the election of the board's 6 nominees as directors of the company. The second item of business is the approval of the Audit Committee's selection of PricewaterhouseCoopers as the independent registered public accountant for the fiscal year ending December 31, 2015. The Board of Directors recommends that the shareholders vote for this proposal. The third item of business is the approval on an advisory basis of the executive compensation, as described in the compensation discussion and analysis and the accompanying tabular, narrative disclosures set forth in the proxy statement for this Annual Meeting. The Board of Directors recommends that shareholders vote for this proposal. We will now take any questions or comments relating to these specific agendas.
Any questions on Proposal 1, the election of directors? Any questions on Proposal 2, the authorization for the audit committee selection of PricewaterhouseCoopers as the independent registered public accountant for fiscal year 2015? Any questions on Proposal 3, the advisory vote on the executive compensation? Question and comment period has concluded. The polls are now open. The inspector of election will distribute forms of proxy to those who wish to vote here at the meeting. If you've previously voted your proxy, you do not need to vote again. Unless you wish to change your vote, submission of a proxy at this meeting revokes any prior notices, proxies you may have submitted. Any shareholders desire to formal proxy, please raise your hand and it will be distributed to you. I don't believe anyone is voting. Any further proxies to be submitted? There are no further proxies. I declare the polls closed for the matters voted on. With the agenda items now having been voted on, I will adjourn the formal portion of this meeting.
While the votes are being counted, we will begin the informal portion of this meeting, and I'll introduce that right now and then hand it over to Daniel. So what we're going to try to do this afternoon is Daniel Wolfe is going to start the process, I believe, talking a little bit about valuations, reporting directly on a series of blogs that are posted on our website about some of the things happening with valuations in the portfolio. I will then sort of present a few slides that look at where we've gotten to where we are now and sort of our road map for the present and the future. We'll finish that with Misti talking a little bit about one of our recent investments, TARA. And then we have a couple of videos, one from D-Wave, a quantum computing company, and one from HzO as well. And then we'll open up for questions after that. So Daniel, I'll turn it over to you.
Thank you, Doug. Thank you, everyone, here for coming on today. Just start quickly with the Safe Harbor statement, if anybody have some questions on it, please do read it, as the statements here reflect the company's current beliefs and there are a number of important factors that could differ and we are not obligated to update them, going forward. As Doug mentioned, I just wanted to speak a little bit about some of the blogs that we've been -- that we've put up on the website regarding valuations. Rich's comments earlier sort of set the stage for the fact that there are, under GAAP accounting, there are a number of sources of volatility within our valuations that have been introduced. Some are related to new industry practices that are being adopted and included in our valuation procedures, and also taking more of the value or being over rated for driving more of the values than maybe historically had happened and others as our companies mature, and you see them moving into different transition states that can lead to differences in valuation. We -- as mentioned, we did publish 3 -- 4 blog posts. First one is really just to highlight, goes over the concepts of where some of these sources of volatility can come in. And then we're going to be discussing in detail the use of option pricing models, public market comparables and early IPOs. For the latter 2, those are really the source of our companies maturing. You have the fact that these companies, when they first start out, they're oftentimes very early stage. They don't have any revenue, any products on the market, they're really in the gestation phase. And as these companies mature, though, they start to generate revenues from the sales of products where you can derive value from multiples of comparables from publicly traded companies. And so now these valuations are subject to potential volatility within public market volatilities as well as how their revenues grow and change over quarters. We typically use a trailing revenue basis for deriving the valuation, and revenues of these companies can be lumpy. And so one quarter can go and be weighed down and one quarter, the next quarter, could be weighed up, which could introduce volatility in those values. We also have a number of companies that are seeking to tap the public markets for financing events. OpGen just completed an initial public offering about a month ago. You have Enumeral, which completed a reverse merger, a public listing in July of 2014. These are relatively early-stage companies, they're relatively thinly traded and so you can see a lot of volatility and we own a lot of these companies as well. And so as their prices move within the public markets on a daily basis, valuation will change. And it can change dramatically from a quarter-to-quarter basis. Whereas historically, that may not have been -- you may not have seen that type of volatility with some of our privately owned companies. But the one area we wanted to dig in on specifically was option pricing models because these are becoming the general industry standard at this point in time, models for deriving valuations of companies for privately owned companies that you do not have a market or a transaction that you can use, or that you don't have maturity level where you can use publicly traded comparables in a market -- at a multiple to revenues. And so what are the implications of option pricing? Well, option pricing models basically look at what you paid in the last round of financing and then taking the capitalization structure of a company out -- what are the share classes that are outstanding, what are the terms of those share classes. And then based on a comparable volatility derived from publicly traded comparables as well as an estimated time to exit, you derive an enterprise value for what that company is worth. And when you do that, you can come out with multiple different enterprise values, depending on the terms and the -- around the stock that the company has issued. So here's an example of one I just wanted to walk through and give you an idea of how OPM can lead to very different enterprise values based on what the terms are of the existing securities that have been issued. So here's an example company, and by the way, we're on Slide 4 for those listening online, I apologize, we'll put out the numbers as we go through. You have a company that's raised 3 rounds of financing, in Series A, Series B and Series C. You can see the amount raised, whereas we're modeling that a company has raised that capital at an increased price per share each round of financing. There's-- with preferred stock there is often a term that's included, which is a liquidation preference. So liquidation preference means that if a company is sold, the preferred stock gets money out first before the common stock. And you can have these liquidation preferences set up as either stacked, meaning that the Series C gets their money out before the Series B, and then the Series A. Or it can be on a pari passu basis, where everyone participates, all these classes of preferred stock, participate simultaneously, each on a pro rata basis, but each one gets a portion of whatever the capital that's being deployed or was received for the sales of the company. In the option pricing model, if you have stacked liquidation preferences, you get a very different enterprise value than you do if it was a pari passu basis, and you can see that in this chart here. If you look at how the value of the company changes on stacked versus pari passu basis, in Series A, it would be about $15.7 million, Series B, $17.3 million for stacked, but if it's pari passu, it's $23 million. And Series C, after the Series C round, $33 million at a stacked preference and $41.9 million in a pari passu basis. Now we can compare this to another way of deriving enterprise value, which is to take the price per share of the last round of financing and multiply it by the number of shares outstanding, which is called a common stock equivalent basis. Just take the entire capitalization, multiply it by that and you would see the value actually go from $20 million to $25 million to $45 million. These are multiple different valuation -- enterprise values of the same company derived through multiple -- through different methodologies. And so why is this important? Well, it's important, if you go to Slide 5, for our values because you can have a company that is doing exceedingly well, signing partnerships, bringing in non-dilutive capital, making -- hitting milestones towards building value, but they raise money at a higher price per share in the next round of financing, but yet, it's a stack liquidation preference. What does that mean? Well, if you look at the first chart on the left, what that means is that our initial Series A investment would actually go down in value because of how the OPM, the option price model, treats liquidation preferences. If it was a pari passu liquidation preference, same company, same -- hitting milestones, doing everything, our value would go up but only go up slightly. If you look on a common stock equivalent basis, you now see that actually, the value of our earlier investments would actually increase substantially with the increase in price per share. So we've now -- and this is now a very large part of how we derive values for our portfolio. So it's a good example to show that unfortunately, valuations and changes in value quarter-to-quarter can give you some indication of what's going on in the company, but you now have to dig deeper to really understand, and we're going to work with -- to be able to communicate this to shareholders in our Qs and Ks that have -- that were -- there are situations where changes in value decreases, may actually solely be due to how option pricing models calculate enterprise value versus actual fundamental changes within the company itself. And so we encourage shareholders to actually learn about these companies, ask these questions, we're happy to speak about them where we can to understand where the potential value for this companies are, not just look at changes in value and, unfortunately, just change the NAV per share as well because it is more complicated. I'll now hand it back over to Doug.
Thank you, Daniel. So what I'd like to do over the next set of slides, I'm on Slide 6 now, is just talk a little bit about the evolution of our investments and where we're going. So as many of you know, beginning in 2002, we announced the focus on investing in nanotechnology and microtechnology and really focused on that. Beginning in 2009, we began to make more and more of our investments in companies that where the end markets were going to be in the life sciences. Because of our nanotechnology focus, because of the type of companies we work with, because of the skill sets of our team, many of those companies were in areas where biology was interacting with other disciplines, so that would be mathematics, physics, material science, chemistry and we call that BIOLOGY+. And then in 2013, we announced that going forward, all new initial investments would be in BIOLOGY+, in this area. So why did we decide to do that? And I think that the reason we did this, as bluntly as possible, is here in front of you right now. If you -- what we observed over a decade of investing and actually, when we went back even over 30 years and looked at the results, although they had changed, is that in the electronics sector, right, in the investments we were making, we are turning $1 into about $0.40, right? In life sciences, turning $1 into $2.1 and in energy, $1 to $1.3. Why was that the case? I think there's multiple reasons for this. The 2, I would posit here today are in the electronics, you've just seen a mass commoditization at a unbelievably fast pace of electronic companies and technologies. So the first time probably, as a mass audience or a consumer, you saw this was in LCD televisions. Right, I remember moving to New York in 2002, and somewhere over the next year, I think, I bought my first LCD flat-panel TV. It was 27 inches and I think I paid $4,500 for it, right? I mean, today, we have a 50-inch, 40-inch TV in the office, and you can probably get that for a few hundred dollars. And that's -- but LCD technology was brand new. So now LED technology is coming to the flat-panel screens, and again, it's eroding at the prices just as quickly, and we've seen that. One of our companies we talked about often, Bridgelux. You have brand-new LED lighting technology, right? It's not even -- there's a debate by consumers whether it'll ever be in the adoption cycle of it because -- is it as soft as incandescent light. It's just beginning to penetrate on a mass scale as the price drops. But the price is dropping so quickly that it will penetrate now over the next year or 2. Very, very difficult for a brand-new technology, with a lot of technology risk, to be able to build a business, grow it, implement it when prices are eroding back quickly. I think you've seen that across semiconductors and electronics. It's wonderful for the customer. It's very, very difficult for the companies trying to produce it to bring that new technology to market. In energy, I think one of the things we witnessed is that -- and it was a question from the beginning, but you have technology [indiscernible] you're doing it a massive scale. So you're going to have plants and manufacturing that come online. This is not all that untrue of semiconductors as well. So you have the plants and manufacturing, and then you have the sale. At the end of the day, do you have a product that you can sell, that can return both the money to the plant managers, building the plant from the facilities and everything like that, and still return money to the technology? And I think, especially when you're dealing with oil, you're dealing with commodity energy issues, the answer to that has been, at least in the first phase of new energy, that is very, very difficult to do, whether it was solar, whether it was LED lighting, whether it was oil production. And so there wasn't a lot of margin left at the end of the day for the technology, yet there is a tremendous amount of technology development and investment in it. So the one area that you see, actually, the attributes that we like as venture investors is still in life science. I define life sciences broadly. We're not talking about health care therapeutics or diagnostics, we're talking about agriculture. We could be talking about industrial biotechnology as well. We're talking about nutrition. We're talking about food. But there, you see a couple of attributes. One, corporations are willing to come in early and help sponsor that. So the amount of investment is offset by the development they will do in the early stage to bring it to market. Two, at the end of this, they are high-value products, so that there is a margin left for the technology, which is what we do as early-stage investors. So you can get paid out on that technology. And I think that's why you see the difference in those returns. So I think logically, what we did, is we started to look and see this beginning in 2009, as we looked out, we made that change even if you look at the unrealized portion of the portfolio, right? So this is unrealized. We're still investing. These are, of course, subject to different valuation methodologies, as Daniel talked everything like that. You see again, one, we hold the value of our portfolio in a depreciated state, but you can see exactly how that plays out. And again, the life sciences is far less depreciated than the other areas. So again, beginning in 2009, you really saw a movement by us. This is long before we announced that into the life science markets, and it's now 88% of the investments we've done from 2009 onward are in the life science. And, of course, beginning in 2013, every new investment we do is under this BIOLOGY+ rubric. So where are we going? So I think that as we look back from 2002, just looking back to 2002, I would say this. Clearly, between 2002, when we started this investment, we had a couple of exits. Those were from investments that were prior to 2002 investing. But when we focused on nanotechnology, started building that portfolio, it was 2011 when we first began seeing some of the exits from that portfolio. I think the conclusion we reached is we're building companies, and we're building companies that are -- that have value to the market. They have value to the corporations that are buying them, they have value if they go public in an initial public offering as well. And they're just not no-name groups buying them. I mean, it's companies being sold to Canon, to Zeiss, to DuPont. These are names that everybody knows. So we've had exits. We've been able to build companies and realize gains through that period of time, and we think that's going to be the case going forward. What we haven't yet seen in the exits we've seen from 2011 through the first part of 2015 is we haven't seen sort of the home run, the 10x return from our investment. We briefly saw it in Solazyme in their June 2011 initial public offering. But then the summer of 2011 hit, they lost about half their value. We have made -- we have about a 4x to 5x investment return in Solazyme, but you don't see that 10x. And anybody that's read about early stage venture investing, there's a wonderful book by Pierre Till [ph] that talks about the power loss. It's really, really difficult at the end of the day to build a portfolio that's going to have the returns that people expect in early-stage venture capital without that home run. Now again, it's difficult where you measure that because again, you have to wait until the portfolio plays out. So our status today, if I have to describe it, is I think that we've shown that we can build, we can invest, we can be involved in good companies and build them and build value in them. I think that what we're missing in the portfolio is the home run that turns the portfolio from basically treading water as it is today, right? We've invested and have returns that paid our expenses, anything like that, to really showing the return potential that we need to as a public company. So what does that mean for the future? So as we look to the future, I think the positive position we see ourselves in is we haven't exhausted that portfolio, and we're starting, okay, we've got new investments that could be the home run. We probably have some of the best investments in our portfolio still in our portfolio maturing. So we look out and we say between 2015 and 2017, what events, what needs to happen, what could drive the home run, the return potential to really turn Harris & Harris Group to have the growth characteristics that we'd like to see? And I think this slide demonstrates a series of companies and events that we expect to see happen over the coming years that could provide that return to us. I just want to point out, on the right-hand side, there's a box. Because there's a lot of companies that it's just too early to understand either the magnitude of the potential exit or the timing of that exit. We don't believe it'll happen before 2017, but these would potentially provide growth for the future of Harris & Harris Group as we look forward. I will note a couple of things. In 2015 alone, we sold the remaining ownership in Molecular Imprints. We sold the CMOS part of the business to Canon in 2014. There was a spinout of another company that had the other piece of the technology, and we sold that earlier this year, so we realized that gain option, had a small financing IPO earlier this year as well. We're currently in the process of selling some shares in another existing portfolio company, which we believe will be an investment return and we hope to have at least another IPO in 2015 as well. So again, events are happening already in 2015. So now I want to turn to that, that right-hand box for a second, that right-hand box of the companies we don't know the timing or the magnitude of. And we've been talking about this. Strategically, we've been talking about this on shareholder calls, but I really just wanted to put it out there. I sort of break those into 2 boxes, right? On the left hand, we have the portfolio of companies we currently believe have substantial return potential, owing to ownership, our control or other factors within those companies. So these are companies we think could be home runs, very good investment returns that could drive returns over the long term. We just think they're going to take more than a couple of years to build and realize that. And at this point in time, we probably can't predict accurately when that timing would be and certainly, when the magnitude would be. On the right-hand side, as the remaining portfolio of companies, some of which we may seek to monetize in the near term. Now some of them you see, like Accelerator. You see Accelerator come as a portfolio of company. Accelerator is actually an incubator. Through Accelerator, there'll be a series of investments made in New York City in therapeutic place, deals that we could not do on our own because we don't have the capital to do it. But by partnering early with premier venture capital firms, with some of the largest pharmaceutical firms, we have the ability to do those deals. As we do those deals, you'll see those deals actually show up on our consolidated schedule of investments, everything as well. So Accelerator is really a holding for that, hence why it's there. But some of these investments here, you'll look to see us monetize. So we look to monetize. One of the great things about being a public company is we get to recycle capital. And if we believe that we have capital that can be better put to use for shareholder return and something else, we want to be able to do that. So you may see us monetize some of those positions over the near term. We've been talking more about this, but I think it's important when we look both to the present and future of Harris & Harris Group. Are we in the right spaces, in the right markets, right? Our investment thesis from 2002, we weren't going to be doing social media investments. We're hard science investors. Our team has Ph.Ds in physics, in chemistry, in material science and biochemical engineering, right? We're all over 30 years old, right? So again, a lot of that world is probably foreign to us, but we have been in transformative markets, right? I mean, LED solid-state lighting is definitely a transformative market, it's going to continue to transform how we think of lighting into the future. Additive manufacturing, we're in the early-stage of additive manufacturing, you hear about 3D printing right now. Molecular Imprints was an additive manufacturing company. So we were in those spaces. Immuno-oncology is a very popular area now. We were in these areas, and that's why we've seen some of the returns that we've seen investing from 2002 to 2015. We believe we're in transformative markets now, maybe even more so. Again, microbiome research is incredibly important right now, it's growing popular. We have multiple companies in this space. We were in it from the very beginning. Machine learning, you'll hear all the time. You'll hear it sometimes tied up with artificial intelligence, deep learning, quantitative algorithmic development. But this is really important. Again, this is probably where we have one of the stronger parts of our portfolio from D-Wave, to Metabolon to UberSeq to EchoPixel, right? So you're going to hear a lot more about machine learning, whether it's search optimization, whether it's finding exoplanets in the universe or just recognition-type technology, and we are in those markets now. Internet of Things, you've heard a lot about that. We're in the Internet of Things. Adesto and HzO are both there. HzO and Adesto both play into health applications of that, again, looking for low power or for waterproofing, AgTech and regenerative medicine. So we really believe that we are in the type of markets that can see the outsized returns, and we think that's truly important for us as venture capitalists, to the point that we have to see where these markets are going probably 5 to 7 years before the general population sees it, because we want to be in early, building it. If we're in machine learning now because you're reading about it in your newspaper, too late to build companies, right? There's a tremendous amount of companies out there. We have to be in it early, we are in early and we're building these companies. And you want to be there as interest grows in that field. Internet of Things, again we've been in Adesto, when was our first investment in Adesto, Daniel?
2007, no one was talking about the Internet of Things back then, right? But that is a bet that played out timing. When we get it wrong -- often, we're not wrong about the spaces, we're wrong about the timing. So we're in too early before the areas emerge. But sometimes, Internet of Things, I think, we're getting the right timing, I think, microbiome, we're starting to see the right timing. Clearly, machine learning we're seeing the right timing as well. As we look to the future, I think we're going to continue to try to focus on transformative markets. Here, as we sit here today, here are some of the markets and space we think we're going to be in for the future as well. So I want to touch on 3 initiatives that we have. So we realize that expenses are a hot button issue across the firm. We realize that is the case. Our 2015 expenses currently are estimated to be $6.5 million to $7 million. What I want to be clear about is $3.5 million to $4 million are related to being a BDC public status. If we did nothing, if we had no one come to the office except to file and do what we had to do as a public company, so no one looking at investments, no one managing it, our expenses would be $3.5 million to $4 million in today's regulatory environment in the markets. That's increased substantially since 2002, right? The highest-paid entity in Harris & Harris Group is the auditors. They make more than the management team does in today's environment. So what we're committed to is taking that delta between what it's going to cost to run Harris & Harris, a public company, and what we currently spend and trying to reduce that. How are we reducing that? We've already made some changes to expenses in 2014 into 2015. We run this public company now, I think, with 10 full-time employees, probably one of the smallest teams to run a public company in the United States. What we think we can do is bring in some revenue. And again, the net difference between our expenses and the revenue we bring in to do some of what we do, we think can start to reduce those expenses, pushing down -- ultimately, it's going to take many years, but pushing down to reduce those expenses to a level we think is viable for our shareholders. Second thing. We need to achieve scale. We're valuing in a number of strategic opportunities to do that. We've been involved in discussions to do that inorganically. But I think, we believe that's extremely important in today's environment to have scale to be successful. I mean, if you look at the Series A rounds that are being raised to do therapeutic deals in healthcare, they're not even -- they're not $3 million or $5 million. They're not even $20 million, $25 million, which is what we saw sort of at the height of 2000, 1999. $100 million Series A. I think there was a $200 million Series A just for the last couple of weeks, right? If you look at Juno Therapeutics, it was over $100 million Series A. Within the next 6 months, they raised over another $100 million into that company. Harris & Harris Group writing $500,000 checks, $1 million checks, in those companies, we can't participate, we can't play in those type of deals. So one needs to get to scale. Now we've looked for more capital-efficient investments. You don't see us doing a lot of therapeutic deals on our own. We do them through things like the accelerator where we have the partners around the table, but we need to be able to scale Harris & Harris Group. We think we can do that organically. When and if there are opportunities to do it inorganically, we will pursue those. Third, this has been ongoing, but we continue to reduce the number of portfolio of companies that we have, but we look to increase ownership. We want to be in a more controlling position in these companies. That means more risk within each portfolio of company, but we think that's the way we need to do to get return. I think the age of being a generalist is very, very difficult in today's world. So we are going to have to really focus our investments, focus our ownership, focus our time in a smaller subset of companies but where each company can really generate a return that is impactful or meaningful to Harris & Harris Group. We -- the slides that we are presenting today at this Shareholder Meeting are up on our website. On our homepage, on the far right-hand side, you can see the slide, and we actually published a shareholder letter today, which I would say is the talk track to this and we talk through this a little bit more. It's probably more articulate than I just presented it because it had many higher-quality filters that went into it into the writing of it than you're ever going to hear be articulated out of my mouth at any one point in time. But I think you can read more about what's happening with some of our initiatives and some other things I discussed today as well. What we'd like to do to close the meeting is we just like to be able to talk about one new exciting investment in our portfolio, take some of the concepts I've talked about and reduce it to practice it, what does it look like when we do have a portfolio of company. Misti Ushio will join us to discuss TARA Biosystems. And at the end of that, Daniel will come up and we want to show you a video of D-Wave, probably one of the most interesting companies in our portfolio in that it's brought the world's most first quantum computer to the market commercially. And then we'll finish with a slide from HzO, a company that's protecting and waterproofing electronics in the Internet of Things space. Misti?
Thanks, Doug. It's nice to be here. Just kind of in closing, we wanted to highlight a couple of our portfolio of companies, and TARA Biosystems is one of our newest BIOLOGY+ investments. We formed the company out of Columbia University, only just last September. And sort of before I get into what TARA does, it kind of highlights 2 trends. We talked about one of them a lot already, and that's at BIOLOGY+. TARA really marries biology with material science and electronics to produce predictive tissue. But the other trend is that there's a lot of going on in New York. We're in New York, we spend a lot of time here, there's a lot of excitement going on in the life science community. And through our relationships at Columbia University and through some of the fantastic research that is going on there, we are able to identify the researchers and really, this particular technology and see value in creating a company around it. So what is TARA, what's the problem TARA is trying to solve? There's a lot of new medicines that are in development, and with all the tools we have today, it's still really, really hard to predict what's going to happen until you actually put that new medicine into the body. And you hear about kind of the extreme cases where your products get into the market and really awful things happen like people are getting sick or even dying, and you think why -- how did they get all the way through 10 years of development and we're only now seeing these safety issues today. And then on the other hand, there's lots of new mechanisms, they're very complicated biology that it’s so complex that you just can't study it in the lab. And if we have more sophisticated tools, we'd actually be able to potentially discover new mechanism of action for new medicine. And so TARA is really tackling this. So the goal is to be able to create predictive micro tissue and really starting with heart. And it's marrying kind of all the advances in stem cell science with what's going in tissue engineering. And many of you have probably seen like videos of like heart cells beating in a dish, and they're kind of round and it's like, wow, that's really cool because you can see them beating and it's cool. But the problem is that's not what your heart looks like. Your heart is a muscle, it's not all of these like little round cells. And so part of the problem, particularly with cardiac toxicity and looking for new drugs for your heart is that there's no really good model that -- where the tools that researchers are using really actually look like your heart or predict what your heart does. And so TARA is commercializing technology to really do this. And so how does this happen? So this is a pretty brief slide. But the technology is utilizing electrical stimulation and the ability to put forth on heart tissue to actually create a more adult-like heart. And so if you have this and you have the ability to look at all these little different heart-represented tissue, you can look at different drugs and you can look at, will they make the heart sick, can we look at new ways to cure disease in the heart? And so what's novel is that with the platform, you can actually create this tissue and then the data coming off of that is really what's useful to pharma. And so we're really excited about what's going on right now with the company. Like I said, we just launched it in September. We've had a lot of really good discussions with pharma and really understanding like what their needs are and really starting to engage with them and do initial studies. And then if you look towards the future, we really think of this as not just heart-on-a-chip, but really like organs-on-a-chip, and so what are the next tissues that we can look at, whether it's skeletal or blood vessels or kidney or bone or even tumors, but all sort of the core, starting with the heart since it really sort of affects your whole body. So I'll stop there and I'm happy to answer any questions after the meeting. Thanks.
So we're going to end the webcast portion of the meeting right now. The videos that we're going to share are available on YouTube and on Vimeo. And we thank you for your time.
Ladies and gentlemen, thank you for your attendance in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.