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March 22, 2005

Small News

Sarah Lacy

I'm solidly in the camp that thinks the "news coverage-to-actual VC dollars going to nanotech" ratio is pretty out of whack. But since it pales in comparison to the coverage Apple gets given its market share, I'm forgiving myself for adding to it today.

The first quarter is shaping up to be a dandy for nanotech companies raising venture capital. By my count, six companies have raised in excess of $80 million-- quite a bit for three months considering companies raised under $200 million for all of last year.

The newest recipient is NanoOpto Corp., a company that uses nanotechnology to make components for optical networks. They raised a $12 million series C round, which included Chicago private equity firm First Analysis, Morganthaler Ventures and the two biggest nanotech groupies: Draper Fisher Juvetson (actually two of their affiliate funds) and Harris & Harris.

In an article on trade site smalltimes.com (somewhere out there, there's a reporter/editor who can resist that pun...), NanoOpto CEO Barry Weinbaum says the rise in nano deals is simply a reflection of how some nanotech companies are maturing into real businesses, shipping real products, generating real revenues.

True, strong nano companies are emerging. But past reporting on nanotech leads me to believe it's not as wide-spread as Weinbaum lets on. In an article I wrote last month, industry insiders guessed there were at best a dozen or so companies really getting market traction that were using nanotechnology. And not all of these venture deals seem to be among them. A March research report by Lux Research, the only research firm I know of dedicated to nanotech, pokes holes in the prospects of Nanomix, which raised $16 million, and Nantero, which raised $15 million.

Since I can't link to the report, I'll summarize: Nanomix is in a very crowded field of companies making nano-enabled sensors, using the oft-hyped carbon nanotubes approach, which BusinessWeek Online reporter Burt Helm, for one, is dubious of. The company's first product is slated for the first half of this year and Lux is skeptical there's enough demand. "In mass markets, nanotechnology-based solutions generally look too expensive for widespread acceptance," Matthew Nordan writes in the report.

Nantero is using carbon nanotube technology to replace existing memory on semiconductors. Lux's skepticism stems from challenges in mass manufacturing the devices and a highly competitive landscape.

Companies like Nantero, Nanomix, and NanoOpto seem to have good science and to varying degrees are emerging into real product companies. Now the risk is how robust that market is, and will the company be able to out execute the others. In other words: Congratulations, you've finally graduated to the worries every startup faces.

Who does Lux not worry about? Nano-Tex, makers of fabric that's nano-treated, like the stuff used to make the Gap's stain resistent khakis. The company raised a big $35 million earlier this month, and the CEO told Deal Flow he wasn't gunning for an IPO this year. Hogwash, says Lux. "While CEO Donn Tice has denied publicly that the company is angling for an offering, we believe that a rapid IPO was part of the pitch that the company gave to investors this round," Nordan wrote in his report. Certainly wouldn't be the first time a CEO has denied such rumors, then filed an S-1.

All those nanotechs with lesser prospects can only hope Nordan is right: The markets, not to mention unsure private equity investors, have yet to see a big, successful nanotech IPO.

07:44 PM

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