When Senior Editor Joanna Glasner set out to report this month’s cover story about nanotechnology, I thought for sure she would find that VCs had all but abandoned the space. After all, our last cover story on the subject, in February 2003, was titled “Nano Nonsense.” We concluded that investors who bought into the nano hype going on at that time would lose their shirts.
Our advice: Focus on companies working on actual products, and make sure they have a realistic chance of manufacturing those products on a commercial scale.
With all of that in mind, I was stunned to learn that venture capitalists had invested nearly $1 billion in 77 nanotech-related companies last year. Were VCs still buying into the hype? Why else would they invest in a “sector” that in 10 years has recorded fewer than 20 exits—none of them a home run?
But when Joanna went out and talked to venture capitalists who have invested in nanotech companies, she didn’t find a bunch of crazies. Instead, she found people who understand that investing in a company based solely on the fact that it is working with nanotechnology is a nonstarter.
Three or four years ago, VCs were caught up in the science underlying nanotechnology. Today, they talk about the products that have been enabled by nanotech. And they are keenly aware of whether those products can be manufactured on a commercial scale. Case in point: When NanoSolar went out to raise $76 million last year, VCs didn’t write the check until the company proved it could produce its solar cells in volume.
So, the fact that large amounts of venture dollars continue to pour into nanotech companies should not be a cause for alarm. What’s important is that VCs understand that nano is a size, not an industry sector. —Lawrence Aragon