Straight Talk on Small Talk: Navigating Through the Nano Hype Part 2 of 2

Straight Talk on Small Talk: Navigating Through the Nano Hype

(Part 2 of 2)

The Information Issue

The underlying problem with the lack of thorough, complete and unbiased nanotechnology business information and data seems to be rooted in identity confusion and subsequent misinformation. As a discernible industry, nano is emerging still, although the concept and science has existed for several decades. Nanotechnology activity has generally been buried under the larger umbrellas of bioscience, or material science, or engineering, or whatever application the science is being utilized for. As attempts are made to track nano capital flow, there is a constant struggle of locating the activity, and how companies and technologists choose to define nano has also become dangerously imprecise. Although nanotechnology is actually not nascent in and of itself, the new wave of information about the market definitely is. Therefore media hype and analyst speculation is being confused with fact. Despite numerous nano capital conferences, reports, articles, and buzz on nano, the general VC community, although interested, is still struggling to understand it enough to invest in it on a widespread scale.

"The hype has caused a lot of confusion on the part of investors and they don't know what to believe," says Joe Lichtenhan, CEO of Hybrid Plastics and panelist at the February 21 JETRO conference, Japan Meets the Nano Republic of California. As investors become more educated and as they gain domain space, Lichtenhan says, that is what is allowing them to quickly discern the truth from what's projected. The market is too premature yet to make an accurate judgment of it, especially any accurate projections. "So the hype has been damaging in the sense that investors don't know what's real. Unfortunately there are only about four firms out there that really know this space and have expertise.

Lichtenhan isn't the only one to point out the nano information confusion that exists amongst VC's. When The Nanotech Business Alliance surveyed the 150 companies, many respondents remarked that the VC community was largely in the dark on understanding nano and thus reluctant on investing. The report stated that over half of the companies surveyed criticized the VC community for lack of support, citing the problem a "a lack of coherent message and position."

"The VC community doesn't understand the science yet," Tinker says. "But I think there are more and more who are beginning to do so. A year ago you could count on a couple of hands the ones who were beginning to understand the science or who had on staff a member or partner who could figure out what was real or fake or not going anywhere at that time." However, Tinker is optimistic that the strong nano knowledge is steadily growing.

What would ultimately serve the field and business of nanotechnology (or any industry) is a combination of education and realistic expectation, a difficult balance to strike as hype ensues. The hype can bring attention and investment to companies, yet it can be treacherous in the long term, says Lynn Foster, Larta's Director of Technology Consulting, who is also speaking at the JETRO conference.

"Similar to the optical networking industry, if hype produces inflated expectations, investors will retreat as the industry matures when those expectations are not met," Foster says.

John Roy, a Technology Strategist with Merrill Lynch who co-authored another nano study last year, The Next Small Thing: An Introduction to Nanotechnology, is quite positive about its potential for market growth, predicting nano as one of the "darlings" for the investment community in 2002. However, he acknowledges the education gap amongst VC's when it comes to nano, yet feels that issue is more about a cautious identification process. "The VC's are just beginning to get an understanding of who it is they trust," Roy says. "There may be 500 researchers out there who want to spin out companies but maybe ten will actually see funding."

Survival of the Smallest

What companies will last after the hype declines, what innovations will become products, and what shape the market will take is still the ultimate guessing game in nano. The renewed jeopardy of federal funding for technology research and development could certainly have a negative impact on nano innovation and subsequent market growth. R&D in this field depends largely on government support because so much of the work is years off from spinning out a product, making it unattractive to VC's who mostly seek out a return on investment within a one to three year time frame.

"The potential government cutback of programs would be devastating," says Lichtenhan of Hybrid Plastics, a past recipient of the ATP and CalTIP grants. Companies that could be hit the hardest by this are early stage ones that have little to no market traction, he says.

Whatever the long-term outcome of federal funding programs, the general consensus is that the companies that will stick after the buzz tapers off are those that follow the universal requirements of any long-lasting tech business: a unique product that fills a gap, serves a need and in turn, generates revenue.

"People are using nanotechnology to make things and do things that they haven't been able to do, and there's a lot of very diligent work in this field," says Scott Broadley, the CEO of Broadley James Corporation (also speaking at the JETRO conference). "There's hype because journalists always need stories, but I see a lot of very sober assessment in the field. That's what's driving it, not hype. And that's what will continue to drive it."

by Wendy Hall
Larta Staff Writer

(click here to return to Part 1)

February 21: US-Japan Hi Tech Partnership 2002: Japan Meets the Nano Republic of California, Co-Produced by Larta
Join us for "Japan Meets the Nano Republic of California", a focused half-day event that brings leading business and research leaders from Japan and the Nano Republic for a practical discussion on current research and potential future business opportunities in nanotechnology. Two high-powered discussion panels will feature key figures and companies building the future of nanotechnology both here and abroad. Featured Keynote: Dr. Eiji Osawa, President of NanoCarbon Research Institute.
12:45 - 6:30 pm, Torrance Marriott. Registration: Pre-registration is $60, at the door registration is $75.
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