COVER SIDEBAR: 2 years later, Nanosys is no closer to IPO

In the short history of nanotechnology venture investing, no startup compares in name recognition to Nanosys. But for the company’s early stage backers, that caché hasn’t translated into bankable returns.

The company that analysts had pegged to be the Netscape of nano dashed hopes of IPO fortunes in August 2004 when it withdrew a planned $100 million offering due to “volatility of the public capital markets.”

Today, its prospects for venturing into the public markets look little better. For one, its storied founder and executive chairman, Larry Bock, left in December for “personal reasons,” says Peter Garcia, chief financial officer of the Palo Alto, Calif.-based company. Bock could not be reached for comment. According to his personal blog, he is currently spending a year abroad with his family and taking science and engineering courses at Imperial College in London.

And while Nanosys has a stable of about 430 patents and patent applications pertaining principally to fabrication of nanostructures from six inorganic materials, it still has no revenue from the sale of actual products. To that end, Nanosys is working on fuel cells and flat panel displays with Sharp, nonvolatile memory with Intel, and solar cells and other applications with U.S. government agencies.

Just last month, Nanosys announced it is collaborating with Japanese mobile giant NTT DoCoMo to develop what Garcia describes as “next generation antenna technology” for mobile phone applications in Japan. As part of the deal, DoCoMo Capital, a subsidiary of NTT DoCoMo, also made an undisclosed equity investment in Nanosys.

I don’t think anyone will admit to a $60 million or $70 million mistake, at least in the VC community.

Tim Harper, Founder, Cientifica

It isn’t clear if Nanosys will need to raise more venture backing. It has raised a total of $95 million in four rounds since 2001, according to Thomson Financial (publisher of VCJ). The company raised its last round, $40 million, in November 2005 from 20 investors, including Arch Venture Partners, Eastman Kodak, Lux Capital and Polaris Venture Partners. It then received an undisclosed investment about a year ago from Nanostart, a publicly traded nanotech investment company based in Frankfurt, Germany.

The last funding round was an indication that VCs see “a big opportunity” with Nanosys, says Clint Bybee, a partner at Arch Venture Partners and a Nanosys board member. He describes the company’s strategy as a platform approach, taking an IP portfolio related to non-carbon nanomaterials and applying it to developing products across a broad range of industries.

Tim Harper, founder of nanotech research firm Cientifica, says VCs were drawn to Nanosys largely due to Bock’s clout. The former Nanosys chief has been founder, CEO and co-founder of close to a dozen biotech firms that today collectively represent billions of dollars in market capitalization. The combination of a proven leader, a hot sector and a generous IP portfolio proved more than VCs could resist, he says.

Notes Harper: “I don’t think anyone will admit to a $60 million or $70 million mistake, at least in the VC community, but it’s almost as if no one stopped to ask: ‘Well, what do you do?”’ —Joanna Glasner