Nano-Bubble Ahead? –

Vinod Khosla, who Forbes named the most successful VC last year, is worried that his peers and the technology industry are hyping nanotechnology – and that the hype may lead to a bubble.

“This whole notion of investing in nanotechnology is a silly one,” he told an audience of about 200 people at the MIT/Stanford/UC Berkeley Nanotechnology Forum at Stanford University on May 27. “You invest in applications that have an economic purpose. You may use nanotechnology or you may not. What’s important is that the applications developed are useful. Now, obviously, if you’ve discovered new physics and new chemistry you can do new things that hopefully can be used in new applications.”

He went on to say: “I also want to give a word of caution. One thing I’m almost certain of is that sometime in the next few years we will go through with nanotechnology the same kind of bubble we went through with the dot-com boom. When people start investing in a technology as opposed to investing in an application, when people start hyping a technology, you’re sure to have bad things happen.”

That prediction elicited some nervous laughter from the audience.

“That’s not to say many people won’t take advantage of [nanotech] and get extra funding or go public or make money,” Khosla continued. “But if you are fundamentally interested in doing something that has a lasting impact, you should focus on the applications that you’re trying to develop or the research you’re trying to do.”

During the Q&A portion of the evening, Khosla was asked if he had any nanotech investments that have failed and what sorts of lessons he has learned. “Fortunately, the field is new enough that companies won’t start failing for a few years,” he replied, and the audience broke into laughter. “It’s too early to tell. … I will say that I think the bulk of nanotech startups will fail-just like bulk of any new technology startups fail. But that’s no reason to avoid the risk. Darwinian theory taught us that many things must fail, and I think it is in fact one of the best ways to make progress, by failing early enough, quickly enough, with lots of accelerants.”

Asked if the industry is already in the middle of a nanotech bubble, Khosla said: “I think it’s too early to tell whether it’s happening or not. I almost feel like there’s too much of a rush to do startups in nanotechnology and I wish we would take a little more measured pace. There’s much technology that shouldn’t be in startups today, that shouldn’t be funded today. It really needs to be in the research domain.”

As for the market segments that will be commercially viable in the next five to 10 years, Khosla predicted that new kinds of computer memory and batteries based on nanotech would “clearly” happen in the next five years. Nanotech-based fuel cells, textiles, new drugs and biomaterials will “probably” develop into markets in the near term, he said.