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13 February 2002

Nanotechnology making big waves among venture capitalists

When looking for seed money these days, know that the guys and girls with the bucks are onto the online pet stores and the "build market share before profit" strategies. They've been there and done that and, since they're still around, were clever enough to get out before the bubble burst.

These folks are now looking to the nascent nanotechnology business.

Reuters reported this: Ask an average investor about nanotechnology these days, and you're likely to get little more than a blank stare.

But a growing number of Wall Street specialists say the new technology could be a foundation for a new bull market, just as PCs, biotech, and the Internet underpinned previous rallies. Others say the field is too young for widespread investment and that it's overhyped.

Nanotechnology, which is computer engineering on a molecular level, is starting to make big waves among venture capitalists looking for the next big money spinner. Some claim it could dramatically advance high-tech fields such as computing, biotech, fiber optics, and a dozen others by making processes and materials faster, smaller, and stronger.

Analysts say it's too early to tell whether "nano" offers real promise-like the PC boom that created Microsoft, Dell, and others-or is just another dot-com bust in the making.

"It will have a huge impact on our economy," said Dwayne Mason, a Houston-based attorney with Akin Gump Strauss Hauer & Feld who specializes in nanotech patent issues. "Over the next several years, it will become something everyone is aware of."

Nanotechnology research is now largely taking place only at government-funded research labs and universities, both in the U.S. and abroad, which typically undertake costly research into basic science. Companies such as IBM and Hewlett-Packard are exploring the field.

Increasingly, investors and entrepreneurs are looking to start ventures in a field that the 10 to 15 years and employ 2 million workers.

Still, while the backing of established scientific bodies such as the National Science Foudnation is important, not everyone is convinced the time is ripe for investors to get into the act. Philip Cooper, managing director of Goldman Sachs Asset Management, said at a recent conference that he would "run in the other direction" from any investment "with the word 'nano' appended to it," saying it's too early to detect likely winners.

But others are gearing up for a potential new gold rush, comparing it with biotechnology, a 30-year-old field that has already produced hundreds of new drugs and billions of dollars in revenue and has yet to reach its prime.

Last week, the investment banking unit of J. P. Morgan Chase & Co., one of the biggest players in the industry, announced it hired Alan Marty, a former nanotech executive at tech heavyweights Hewlett-Packard and Agilent Technologies, to spearhead nanoinvesting at J. P. Morgan Partners, its private equity arm, with $30 billion under management.

Nanotech will "significantly revolutionize" the fields of semiconductors, life sciences, optical networking, and others, predicted Marty. And like start-ups in any new field, "there are sure to be a number of companies that will be unsuccessful," he said.

Marty said his job will be to find those companies that have near-term potential products or processes, a factor that may appeal to investors burned by the NASDAQ dot-com and tech stock bubble of 1999 and 2000.

So far, the hype that grossly inflated genomics, dot-com, and other technology companies before the NASDAQ crash two years ago hasn't spread to the small number of publicly traded nanotech companies. But with the ever-present need for money at entrepreneurial start-ups and investment bankers' desire to underwrite a new technology gold rush, that may not last.

For instance, shares in Altair International, a company that is developing "nanomaterials" for use in fuel cells, paints, solar cells, and others, fell 58% during the past year to trade at $1.30 on Monday. Similarly, shares in Nanophase Technologies, which is developing applications for its "nanocrystalline" materials, fell 40% since mid-2001 to trade at $7.32 on Monday.

Part of the lack of investor interest may be due to the incomprehensible nature of nanotechnology to the average investor. However, as the potential commercial applications of nanotechnology become clearer, that could change, some experts say.

Marty said he will be looking at some 50 start-ups in the field, many of which can be expected to conduct initial public offerings in coming years, giving small investors a chance to get involved.