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February 27, 2006
Nanotech expert says don't invest in nanotech
Don't call us, we'll call you, is the message that VCs are giving nanotechnology entrepreneurs. And rightly so, says Tim Harper of Cientifica in a new report his firm will published today.
One of the best known images from the nanotech hype era (circa 2002) is the IBM millipede project, a nanotech inspired storage device. Three years later, IBM showed a prototype of the storage chip.
In this latest paper, Harper, who makes a living advising institutions, businesses, and VCs on nanotech investment, delivers the good news: some $375M was invested last year in nanotech, almost double the previous year. And then the bad news, the total is only 1/700th of the amount VCs in the US invested in technology ventures. And more bad news, much of the money invested so far is locked up inside illiquid companies with little short term chance of an exit, according to Harper.
In case you don’t recognize his name, Harper was a frequent speaker at industry and investment confabs during the nanotech hype a few years ago. It was a time when experts, Harper included, were publishing target market estimates for molecular science innovators that had as many zeros in them as you get when you compare a nanometer to a kilometer (1 kilometer contains 1,000,000,000,000 nanometers).
Harper expects investors this year “to continue to lose patience with first mover nanotech companies”, leading to “rich pickings for patent trolls and companies looking to acquire IP in fire sales", as well a slew of attempted trade sales and IPOs.
His advice? Don’t invest in nanotech per se, move up the value chain.
It is becoming increasingly clear to investors that the returns from nanotech will not come from companies producing nano materials such as carbon nanotubes, but from companies using them to create new paradigms in existing major markets such as health, energy, food and textiles. .
If there are any small tech entrepreneurs reading this, you can take some consolation in the fact that the VCs and experts are saying that nanotech is over. It means that the market is in the trough phase. What follows the hype is the disappointment trough. Then comes the real growth and when that happens, the VCs will be back as if they'd never been gone.
Remember, it was just three or four years ago that VCs were saying similar things to people like Niklas Zennstrom, co-founder of Skype, or Riccardo Zacconi, co-founder of online casual gaming betting platform King.com, when they were trying to find early stage funding. In the meantime, the consumer Internet market took off, VCs changed their tune.
Everybody knows what happened with Skype, and when King.com (formerly Midas Player) finally did raise its first round of venture capital, it was able to sell a minority stake to Apax Partners for a whopping €34M.
Besides, not everyone thinks nanotech is over. We just had news from the organizers of the NanoEurope fair in Eastern Switzerland and they are expecting the biggest event ever this fall, and have added a new exhibition to support industrial and commercial adopters.
Read - Paper to published on Monday (cientifica)
Posted on February 27, 2006 09:00 AM | Posted to Venture Capital | Permalink
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