By Tom Henderson
Small Times Senior Writer

Aug. 29, 2001 — A fledgling venture capital firm in New York that focuses on nanotechnology investments hopes to establish itself as an authority through its release of a 269-page overview of the smallest of small tech.

“The Nanotech Report,” authored primarily by Josh Wolfe, 24, one of five co-founders of the Lux Capital Group, looks at near-term prospects in a field often known for blue-sky predictions that are many years away from reality.

The book is currently available only to the investment community and sells for $4,750. Lux Capital will begin taking orders from others in several weeks.

Charles Musgrave of Stanford University, winner of the first Feynman Prize in nanotechnology in 1993, praised the advanced copy of the book he received.

“The report is a very useful piece of homework on the status of nanotechnology,” he said. “It does a great job of reporting on the level of activities at various labs. This isn’t easy since we are in a transient phase in this field.

“The report gives the investment community the chance to shorten the gap between what the researchers know and what an investor would know after a lot of due diligence. It also does an excellent job of analyzing early trends in this area without getting swept up in the whirlwind of hype.”

The report is packed with background information on research institutions, potential investment areas and technical definitions, but it contains few predictions. And, despite its hefty price tag, the purpose of the nine-month project was not to generate revenue for Lux, but to raise awareness of the new firm as one that understands nanotechnology, Wolfe said. Lux is hoping to parlay this credibility into partnerships for future investment opportunities, he said.

The model was Morgan Stanley Dean Witter’s The Internet Report, an early overview of the Internet that many believe was responsible for helping position Morgan Stanley at the center of investment banking opportunities during the dot-com boom.

“The Internet Report by Mary Meeker and Chris DePuy set Morgan Stanley up as the thought leader in the Internet space,” said Wolfe, “We want to establish Lux as a thought leader and early mover in nanotechnology.”

“Nanotech will permeate through many different industries the way the Internet did and will create an investment mania,” said DePuy, whose positive comments on the book — “a marvelous piece of work” — appear on its cover.

DePuy is now general partner of Bowman Capital, a later-stage Silicon Valley VC firm that has yet to make its first investment in nanotechnology. “We’re studying the players and finding out who’s who,” he said.

About the book, DePuy said, “Josh has studied the space a lot and he’s figured the space out. He’s doing a heck of a lot more for the space than other investors and he ought to be recognized for it.”

Lux, with a modest $50 million at its disposal, isn’t alone in recognizing the opportunities in VC. The huge Silicon Valley firm of Draper Fisher Jurvetson, which has two funds currently, one of $690 million and the other of $640 million, is avidly looking for nanotechnology deals. In late March it invested $750,000 in Arryx Inc., a Chicago firm that does nanoscale manipulation through what it calls Holographic Optic Trap technology, which “provides the means to intelligently and independently manipulate thousands of microscopic objects with tiny beams of laser light.”

Managing partner Steve Jurvetson regularly writes about nanotech opportunities for his company’s Web site and predicts that in two years, 40 percent of the deals he leads will be in nanotech.

A New York-based financial adviser, Capital IQ Inc., has identified more than 80 VC firms with active investments in nanotechnology.

Lux has yet to make an investment in nanotechnology, but has made several in artificial intelligence, information security and wireless applications.

“There are about 14 targets in nanotechnology we’ve identified, over the next few months a handful of which will actually be receiving capital,” said Wolfe.

His partners are Peter Hebert, Rob Paull and Jim Sharpe.

This book focused primarily on materials and instruments vital to nanotechnology. Wolfe said a second book, at least six months away, will focus on nanobiotechnology.

Among the book’s highlights:

• A computer search of 5,906 worldwide publications showed that in 1995, there were fewer than 200 articles mentioning “nanotechnology.” There were fewer than 400 in both 1997 and 1998. Last year, there were more than 1,800 and there will be more than 3,000 this year.
• The top U.S. universities in nanotechnology include the Massachusetts Institute of Technology, Harvard University, Stanford University, the University of Virginia, the University of California, Berkeley, Cornell University, Rice University, Yale University, North Carolina State University, California Institute of Technology, Northwestern University and the University of California, Los Angeles.
• There are four major areas for institutional investors: materials, modeling, measurement and manipulation.

Nanotechnology involves building from the atomic scale up, which opens up a range of new materials with new and exotic properties. Buckyballs and carbon nanotubes are the most famous, but high manufacturing costs have prohibited wide-scale use.

More mundane materials, such as carbon black and layered silicates, are already being widely used in the auto industry, and Romeoville, Ill.-based Nanophase Technologies Corp. sells hundreds of tons of zinc oxide to BASF Inc. and Schering-Plough Inc. for use in suntan lotions.

The laws of physics change at nanometer scales, where quantum mechanics rules, which present challenges and opportunities to software developers, described in the book as “a rich landscape of unclaimed intellectual property.”

The book says that measurement devices are crucial and incorporate such technologies as atomic force microscopy and scanning tunneling microscopy. A wide range of tools will need to be built that can find and measure things as small as a single atom, and other tools will be needed to move them around to build the nanomachines and products of the future.

Related story: ‘Money and science make sense’ to venture capitalist

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CONTACT THE AUTHOR:
Tom Henderson at [email protected] or call 734-528-6292.