When President George W. Bush talks, people listen. And when Bush designated April 29 National Nanotechnology Day, a lot of very important people listened. Many of them came to Southern California this winter for “Nanofinancing 2002” in Los Angeles; International Business Forum’s first Nanotechnology Investment Forum in Palm Springs; and the Emerging Technologies Conference in San Diego sponsored by IBC, a subsidiary of Informa Life Sciences Group. Many more are coming to seek local partners and build the foundations of this emerging industry, which is launching big changes by making materials as small as possible.

What’s the big deal?

“When you make materials this small, you get new optical and electric properties,” explains Larry Bock, CEO of Nanosys, a startup company focused on the development of nanotechnology-enabled systems. “If you take nano sized materials and reassemble a pane of glass, it will have completely different properties.”

Bock cites petroleum refining and semiconductor chips as two promising applications for this new technology. The key is greatly increasing the surface area of materials relative to their weight, an advantage that can turn a lightweight T-shirt into a bulletproof vest and shrink a telecommunications satellite to the size and weight of a baseball.

Nanotechnology is growing from a dimension so small it requires big imaginations. One nanometer is just one billionth of a meter — half the size of human DNA. Today nanotechnology is being used to produce new substances made up of four to 400 individual atoms. These small wonders have big potential. A recent feature in Chemical Week magazine projects that annual industry revenue will reach $25 billion in the next 10 years.

This emerging technology is generating a new wave of innovation in San Diego’s healthy biotechnology businesses. “Nanotechnology is a cutting edge area that is going to become more significant down the road,” reports Biocom/San Diego President Joseph Panetta. “San Diego has an advantage from its Supercomputer Center and strengths in biotechnology and engineering.”

The Nanotech Coast

San Diego is well-positioned to benefit from the growing interest in advancing nanotechnology from science to business. More than half of the openings for nanotechnology careers listed on the popular Monster.com recruiting Web site are on Southern California’s Tech Coast, following the Pacific Ocean from Santa Barbara to San Diego. The sunny climate is a definite plus, but the main attraction is the classic success formula of being close to customers. Three of the most promising applications for nanotechnology are big business in Southern California — biotechnology, microelectronics and aerospace/ defense.

Biotechnology may be the first to benefit.

“Drugs can be developed to target one gene,” reports Margaret Yount, business development officer of San Diego Magnetics, a company whose laboratory centers are supporting researchers in advancing their nanotechnology applications to the manufacturing stage. “We are working with structures at the level of atoms and angstroms to manipulate fluids and isolate cells.”

Yount foresees an “explosion of technology as the human genome project nears completion, allowing companies to do things in a new way.” Scott Broadley of Broadley James Corp. in Orange County points out that two-thirds of the pharmaceutical treatments approved to date are not water soluble, a limitation which nanotechnology promises to overcome with molecule sized devices which can release these medications to patients most effectively.

Dr. Brian Pierce of Rockwell Scientific observes that “you can mimic biology in the development of molecular wires. In the semiconductor area you are seeing working nanomaterials today with software and algorithms at the base of these technologies.”

San Diego Magnetics sees a similar conversion and is applying biological agents to electronic components and using biochips to create an optical device for data storage and transmission. As Yount explains, “When you get to these very small structures, a lot of what can be applied in biotechnology can be applied in data recording.”

This potential is prompting initiatives at local electronics vendors such as AMCC and large consumer electronics multinationals like Sony and Kyocera, which have established large bases in San Diego.

The aerospace and defense industry also is ready for takeoff.

“Chrome and nickel have been a problem with corrosion resistance,” points out Rob White, SAIC’s research and development director. The SAIC R&D team has secured a patent for microfluidic coatings with optoelectrical properties that can solve this problem for the Air Force and commercial aircraft manufacturers. SAIC is funding much of its research with support from the Pentagon’s Defense Advanced Research Projects Agency.

Total federal funding of nanotechnology research is budgeted at more than $600 million this year — a significant amount, but just a fraction of the $14 billion Japanese government agencies plan to dedicate to this effort.

While nanotechnology is taking off across Southern California, San Diego is earning a reputation as “Ph.Diego” with America’s densest concentration of research institutes on the Torrey Pines Mesa. Dr. Reza Ghadiri of the Scripps Research Institute and Professor Michael Sailor of the University of California, San Diego have become internationally recognized experts in the field of nanotechnology research. Nearby University of California, Los Angeles also has raised in excess of $300 million for its newly founded California NanoSystems Institute.

Small Talk

The momentum building on the Nanotech Coast is bringing the nanotechnology community together here this year. The Los Angeles Regional Technology Association, publisher of the “Nanotechnology Yellow Pages,” is featuring nanotechnology start-ups at the annual Southern California Technology Forum on April 18. Three months later, leading nanotechnology experts and the business community will meet at the California NanoSystems Institute at UCLA. And smallTalk2002, the premier industry conference, will start in San Diego on July 28.

When will nanotechnology move from small talk to big business?

Tim Driscoll of Mission Ventures is proceeding patiently. “We have looked at some nanotechnology plans in the past year and a half, but have not funded any yet. It is a bit early,” observes Driscoll. “A lot of it is still basic research. It’s better to get grant money from NSF or SBIR or DARPA until a company can project some commercial sales in one to two years.”

Driscoll sees growing interest in the venture capital community, such as Sevin Rosen Funds’ addition of nanotechnology expert Dan Leff to its investment team. US Ventures also has recruited a nanotechnology expert, Arati Prabhakar, former director of the Microelectronics Technology Office at DARPA, and Los Angeles based Smart Technology Ventures and Convergent Ventures have made nanotechnology a high priority for new investments.

Locally, SAIC’s venture group is preparing to complement its internal nanotechnology R&D activities with investments in promising startups.

The World Is Watching

Japan’s giant Mitsubishi Corp. has backed Nanotech Partners, the first private equity fund dedicated to nanotechnology investments, and recently opened a La Jolla office of MC Financial Services to identify promising investment opportunities in nanotechnology and related fields. Its lead has been followed by NextGen Partners of Santa Barbara, which is specializing in early stage nanotechnology investments with the backing of the German chemical and drug conglomerate BASF.

Nanotechnology success will need more than small change.

After raising $15 million in funding earlier this year, Nanosys’ Bock observes: “This industry is multi-disciplinary and capital intensive. You can’t do this on a shoestring. You won’t be able to fund a nanotech startup with friends and relatives unless you’re related to Bill Gates.”

As San Diego stakes a claim in this emerging industry, its nanotech execs are thinking big.