Private funding limited for nanotech

By SCOTT R. BURNELL, UPI Science News  |  May 21, 2002 at 2:20 PM
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NEW YORK, May 21 (UPI) -- Long lead times for payback on investments probably will discourage venture capitalists from funding nanotechnology start-up companies for some time, speakers said Monday at a conference.

Nanotechnology, the science of manipulating matter at the atomic or molecular scale, cannot yet provide the customary tenfold returns on investment within five years, or fivefold returns within three years, which are usually expected by VCs, as venture capitalists are called, said Richard Shanley, a partner at the consulting firm Deloitte and Touche.

The flood of dot-com failures the past few years have brought on such stiff requirements, Shanley told the NanoBusiness Spring 2002 conference, which was designed to bring nanotech scientists and investors together.

"If you look ... in the nanotech area and work a little math on it, what it comes out to imply ... is (that) an end value of under a billion dollars makes a VC investment very difficult," Shanley said. "If you can't demonstrate substantial pre-money valuations, you can't entice a VC to put money in, or they'll want to take such a big hunk of the company that the entrepreneur could be unwilling to do it."

Lacking venture capital, nanotech start-ups might want to explore partnerships with large corporations that would be happy with controlling production of an end product, Shanley said. Another funding alternative is government agencies, such as the National Institutes of Health or the Defense Advanced Research Projects Agency, said K.V. Madangopal, senior research associate with the Alliance for Nano Medical Technologies, which deals with start-up companies associated with Cornell University.

"DARPA's first (funding) step goes towards proof-of-concept work," Madangopal told the conference. "You don't have to show proof of manufacture. That sort of funding comes with no strings attached. They're only interested in the (technology's viability) and subsequently you can go off and start your own company."

A lot of nanotech research is aimed at medical fields, which can entail obtaining Food and Drug Administration approval. Despite lengthening the development time frame, getting into the FDA's pipeline can be a key funding milestone, said Steven Wilson, director of the Center for Advanced Materials and Nanotechnology at New York University.

The FDA process is familiar enough to investors that it can validate a concept's viability, making support appear less risky, said Wilson, who is also chief scientist for C-Sixty, a Toronto-based company researching how to encapsulate drug molecules inside so-called "buckyballs," spherical nanoscale collections of carbon atoms.

The drawback in that approach is the cost of the trials, which can eat up available funding, Shanley said.

"It remains to be seen under what financing scenarios nanotech will be able to take nano-bio products through such trials, whether or not the market will reopen to public funding of (research and development), which is what went on for a large part of the 1990s," Shanley said.

Allying with existing academic facilities is one way to soften the approval process's financial blow, Madangopal said. For example, universities often hold licenses for animal trials, removing one task from the approval chain, he said.

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