Many of the French venture capital funds created in the last two years are meant to include nanotechnology in their bag of tricks, but few have been able to find the right kind of investments.

“The sector is just emerging right now; there is a lot of talk, but most French nanotechnology companies are at the seed money phase,” says Richard Vacher Detourniere, director of Siparex Ventures, a company that boasts eight venture capital funds focused on technological innovations. “They are just at the point when they are starting to develop technologies, but they don’t have products yet; and we are here to fund businesses, not research.”

Like many other venture capital companies, Siparex is keeping a close eye on the nanotechnology field, but it has yet to make any investments. Its latest fund, called Generation Innovation 1, includes nanotechnology as one of its stated investment goals.

Spef Ventures, a venture capital group owned by cooperative bank Banques Populaires, has received only two nanotechnology investment proposals, but it remains very interested in others, even if the projects don’t fit the typical investment criteria.

“In the case of nanotechnology, we are looking pretty upstream,” says Jean-Patrick Demonsang of Spef Ventures. “Our average investment is normally in the one million euro range ($0.9 million), but we are willing to go lower if we feel the technology is important for the future.”

Seed money fund Emertec is an exception. Earlier this year, the $18 million fund invested in Nanoledge, a Montpellier-based nanotube startup.

The fund’s main focus is new materials and this investment represents just one out of the 11 investments Emertec has made since the fund’s launch in 2000. But Emertec general partner Philippe Capdevielle expects more nanotechnology will be added to the mix in the future.

“Two years ago, we wouldn’t even receive any projects concerning micro and nano and now they are coming in,” he says. “Most of the time the startups are premature, either in terms of management or product, but we keep an eye on them for three months to two years, while they mature.” Today, three or four such companies are biding their time in Emertec’s virtual waiting room.

The issue of company maturity is a concern many investors share. An oft-repeated criticism of nanotechnology companies is that they are just out of the lab and that management teams lack the business sense that could turn their technology into a workable company.

Some marketers have started to add the nano prefix to every and anything, regardless of whether the technology warrants it. This is generally not too difficult to sniff out, but other realities are more difficult to detect.

“You have to keep a cool head because sometimes experts in a field are asked to take part in a project without being required to devote themselves to it full time,” says Demonsang of Spef Venture. “In practical terms, it can mean that these experts are part of a company’s management team on paper only, and don’t participate in day-to-day operations.”

One of the other obstacles venture capitalists face in selecting nanotechnology investments, is the fact the startups are essentially cottage industries. They seem to have difficulty moving toward the industrial production stage.

“For there to be a technological revolution there must be scope, for there to be scope there must be quantity and for there to be quantity there must be industrial production,” argues Olivier Chapel, investment analyst at the venture capital group Sofinnova Partners. “The problem right now is that everyone is producing in very limited quantities and we need industrial-scale production to get anywhere.”

BRISK MICROTECH BUSINESS

Though French nanoinvestments appear to be on hold while the sector matures, venture capitalists are doing some brisk microtech business. Siparex Ventures has invested in four such companies over the last 12 months, including integrated circuit group Soisic, multilayer coating company Xenocs and Inside Technologies, which makes contactless smart cards.

In the microtech portfolio at Spef Ventures, you’ll find chip group MEMSCAP, data compression company Takasic and Europe Technologies, which makes systems-on-a-chip products.

For French venture capitalists, nanotechnology is the logical continuation of investments like these. “For us, nanotechnology isn’t a break with the past; it’s an evolution rather than a revolution. It’s just smaller,” says Demonsang. “However, what is new is that with nano, electronics and life sciences begin to converge.”

J.P. Morgan Partners, the private equity arm of JP Morgan Chase & Co., announced in February that it had hired nanospecialist Alan Marty to spearhead investing in this multidisciplinary area.

French venture capitalists aren’t at the stage where any one person is dedicated to nanotechnology investments. Generally, that responsibility is shared by people on the advanced technology or microtechnology teams. The French nanotechnology scene just doesn’t warrant it for now.

However, everyone is in ready mode. “We know that there is going to be intense development over the next two years, so we are positioning ourselves today,” says Detourniere of Siparex Ventures. “Keep in mind that our investment cycle is long; the fund we start today will have a 10-year lifespan, so our vision is long term.”