By Matt Kelly
Small Times Correspondent

CAMBRIDGE, Mass., Feb. 5, 2002 — Be real or be part of the hype. That’s the advice nanotechnology experts gave an audience of investors, business executives, consultants and students last weekend.

Speaking at an investment forum at Harvard Business School on Sunday, a four-member panel of nanotech industry players told the standing-room-only crowd of more than 100 that the fledgling sector needs to start creating real devices to solve existing problems.

Otherwise, nanotech could follow artificial intelligence or other technology fads that once flashed into the public mind, only to end up as niche ideas that never went mainstream.

The panel, moderated by Small Times Managing Editor Steve Crosby, acknowledged that might be easier said than done. With nanotech still in its infancy and struggling to solve difficult manufacturing problems, the scientific and


Materials are driving
the nanotech market
right now, says
Carmichael Roberts
of Surface Logix Inc.
business communities might yet decide to pursue other approaches to solving today’s technology challenges.

“The problem with nanotech is that you don’t know if you’re the only solution to a problem,” said Jason Friedman, an associate at JP Morgan Partners who specializes in the field. “To get from point A to point B, you need a real problem and an actual market for solutions.”

The nanotech industry faces several hurdles as it tries to reach that credible point, panel members said. One is simple lack of actual products and uses; much of the industry’s promise is still mired in research and not ready for commercialization. With few real companies following concrete business plans, there’s little incentive for larger businesses or investors to support the sector.

Josh Wolfe, managing partner of Lux Capital, gave the example of companies that make tools for nanotech. They might require tens of millions of startup capital, but then be acquired for $150 million to $200 million. “For late-stage venture capitalists, that’s not necessarily a compelling return,” he said.

Noubar Afeyan, a biotech entrepreneur and investor, contrasted the situation to the biotech industry’s growth in the early 1980s. Then, pharmaceutical companies funded biotech ventures to explore ideas such as obtaining alcohol from wood or developing perfumes. Those ideas proved fruitless, he said, but not before biotechs found a raison d’etre in the drug business.

Prodded about what similar incentives exist for nanotech, most of the panel said such a situation hasn’t evolved. Wolfe, Friedman and others conceded that most of the field’s more eye-popping possibilities are still science fiction. For the next several years, they predicted, nanotech will move forward on basic levels such as producing carbon nanotubes or other new materials.

“I think materials is where you should focus,” said Carmichael Roberts, co-founder and president of Surface Logix Inc., which makes bioassays for drug discovery. “Materials is driving everything right now.”

However, Christoph Westphal, a general partner at Waltham, Mass.-based Polaris Venture Partners, expressed hope for devices like biosensors. Since biosensors try to detect minute elements such as anthrax spores, they are naturally well-suited to incorporate nanotechnology and bridge the gap between nanotech potential and market need.

The industry must also navigate between the hype of a potentially hot new field and investors who might quickly write off nanotech as too niche for attractive returns. “That’s a challenge,” Roberts said.

“Hype is good. Hype is lubricant for cash flow,” Wolfe said. But at the same time, he said, some companies jump on the nanotech bandwagon just for the allure. He cited Nanogen, a California company that is decidedly in the realm of microelectronics. “It’s not a nanotech, but its prefix lends that credibility.”

Not everyone at the Harvard conference had high hopes for nanotech. In another panel about biotech investing, Atlas Venture principal Jean-Francois Formela said “there’s a lot of hype in biotech now about this” but he pays more attention to the immediate problem.

“Fundamentally … a really good way to look at technology is to look at the application,” Formela said. If the application sounds solid, he said, then he looks at the underlying technology.

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