A Publicly Traded Venture Capital Company Investing in Tiny Technology



First Quarter Report 2005



Fellow Shareholders:


     In our report to shareholders for the quarter ended September 30, 2004, we asked you to let us know if you preferred to continue to receive the quarterly reports in printed and mailed form, as opposed to our simply posting them on our website, www.TinyTechVC.com.  We received pro and con comments, but there were enough requests for them in written form for us to continue printing and mailing them for the time being.  We thank those of you who commented to us on both sides of the issue.


     The most significant development during the first quarter was Alexei A. Andreev joining the firm as a Managing Director and as an Executive Vice President.  Mr. Andreev is opening an office for us in Northern California, where we have made a number of tiny technology-enabled investments.  Prior to joining Harris & Harris Group, he worked as an associate for Draper Fisher Jurvetson, a large venture capital firm that is a leader in investing in nanotechnology, and TLcom Capital Partners, a London-based venture capital fund.  Previously, he was an Associate with Renaissance Capital Group/Sputnik Funds, a private equity fund in Moscow.  He was also a researcher at the Centre of Nanotechnology, Isan, in Troitsk, Russia, at the Laboratory of Nanophysics.  He was graduated with a Ph.D. degree from the Moscow Steel and Alloys Institute, where he had previously received a B.S. degree, with honors, in Engineering/Material Sciences.  He also was graduated with an M.B.A. from the Stanford Graduate School of Business.  In summary, he brings a combination of scientific expertise in nanotechnology and training and work experience in venture capital that makes him an excellent and appropriate addition to our team. 


     During the quarter, we made one new investment of $1,500,000 in Zia Laser, Inc, and five follow-on investments for a total of $2,244,076, in Cambrios, Inc., Nantero, Inc., Nanomix, Inc., Starfire Systems, Inc., and NanoOpto Corporation.  Since our investment in Nantero, Inc., in 2001, our last 22 initial investments have been in tiny technology-enabled companies.  Including follow-on investments, we have now invested a cumulative total of $29,124,638 in tiny technology-enabled companies since 2001.  Our deal flow remains robust, and the growth of our tiny technology portfolio on the basis of cost has followed an exponential curve since 2001.


     The decline of $2,233,447 in the first quarter in our net asset value reflected, among other things, the decline of $2,250,029 in the value of our shares in NeuroMetrix, Inc. (Nasdaq: NURO), which went public in July 2004.  Because our 1,137,570 shares of NURO are currently our most highly valued holding, the volatility of NURO’s stock price is now a significant influence on our net asset value and net asset value per share.  NURO closed on December 31, 2004, at $11.75, versus $9.55 on March 31, 2005.


     The most recent issue of Small Times magazine, dated April 2005, lists the six venture capital rounds in 2005, to the date of publication, that Small Times identifies as nanotechnology investments.  Harris & Harris Group led one round (Nanomix, Inc.), was the only institutional investor in another (Starfire Systems, Inc.), and participated in two of the others (NanoOpto Corp. and Nantero, Inc.).  Only one other venture capital firm was listed as participating in as many as two of the six rounds.


     The stock market has been in decline since the beginning of 2005, an adverse environment for initial public offerings of new, technology-driven companies.  Moreover, small companies in particular are more hesitant about going public because of the recently increased regulatory burden on publicly traded companies.  But this same environment has been propitious for firms such as ours that are in an active investment mode:  valuations of technology-based venture capital deals have, by and large, remained reasonable.   During this period of stock market weakness, particularly for smaller companies, we have been, as always, appreciative of your support as fellow shareholders.



Charles E. Harris

Douglas W. Jamison

Chairman and Chief Executive Officer

President and Chief Operating Officer

Managing Director

Managing Director


Daniel V. Leff

Alexei A. Andreev

Executive Vice President

Executive Vice President

Managing Director

Managing Director 


May 9, 2005