MUNICH, Germany — “People don’t buy technology, they buy products. So concentrate on the products.”
That was the gospel preached at Nanotech Planet in Munich, a two-day conference devoted to nanotechnology business in Europe. The engineers and venture capitalists hammering that message home seemed intent on converting scientists into businesspeople — or at least instilling in them the fact that any nanobusiness has to focus on the business part of the equation as much as on the science.
If it does not, it is doomed to that purgatory where so many other interesting high tech ideas have ended because they could not turn themselves into products and profits.
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Nanotechnology startups are even more susceptible to that fate because they need significant levels of funding to pay for equipment up front. So they often go knocking on venture capitalists’ doors.
Unfortunately, venture capitalists, especially in Europe, are getting shy about opening those doors.
“Venture capitalists over a number of years have been systematically burned by the telecoms wave, the Internet wave and potentially by some of the biotechnologies,” said Simon Waddington with PolyTechnos Ventures, a venture capital firm. “What’s happened is that they’ve realized that venture capitalists should fund great business opportunities, not great technologies. What’s happening with nanotechnology is we’re seeing a lot of great technologies coming to our desks, but not a lot of great business opportunities.”
The majority of nanobusiness plans that pass his desk spend the first two pages talking about what a massive industry nanotech is going to be and the next 20 pages describing the technology. Despite the name, often there is no actual business plan in sight.
“They use the buzzwords, but don’t discuss the market dynamics,” he said, and that worries European venture capitalists who take a conservative approach to funding nanobusinesses.
“Startups will show us a tremendous technology, but one with very small markets, Waddington said. “When people are looking to get their business financed, the first thing to do is throw away the nanotechnology and focus on how you’re going to make money.”
That can be difficult for nanotech startups, since many of them come straight out of academia and have Ph.D.s running the show. These scientists sometimes have little knowledge or interest in the mechanics of markets or the ins and outs of running a business.
“Venture capitalists are increasingly having to deal with people coming out of universities who want to be CEO and run the company. They don’t have any experience with manufacturing, no quality control, no labeling,” said Meyya Meyyappan, director of the Center for Nanotechnology at the NASA Ames Research Center. He said it was essential that young firms look for experienced management on the outside to compensate for the holes in their business knowledge.
Once these firms have some business expertise on board, they have to start thinking about revenue generation. How is the money going to come, and when? Since the nanotech industry is so young, many firms are looking at five to 15 or more years before their products get to market and start generating a cash flow. These days, venture capital companies are less willing to invest in these long-term prospects. Cash flow has become a priority among European venture capital funds.
“Investors in funds are saying to us, ‘Look, where is the cash flow from these companies?’ ” Waddington said. “You have to show them that it’s not five or 10 years before cash flows begin, but that it’s in the short term, under five.”
That can be a challenge for young nanotech companies because it takes time to build a business, especially one using very new technology. It is one of the reasons some young companies choose to cast their nets wide at the beginning, doing research and developing products in many fields at the same time, from pharmaceuticals to communications to textiles. They are waiting to see which fields show real revenue-generating ability before deciding on where to concentrate their efforts.
“If we could figure out how to do nanotechnology in the travel and tourism field, we’d do it,” laughed Roy David, chief executive of Ireland’s NTera Ltd.
In the end, it is time for the nanotechnology industry to get back to basics, conference participants concluded. For all the hype that has surrounded the technology, it is not immune to basic market forces.
Francis Bornstein of SWX Swiss Exchange said that many venture capitalists do not have a lot of knowledge about nanotechnology yet or the rules of the game. In the wake of the dot-com failures, that means they are going to fall back on their tried and true methods.
“With new technology there’s still a lot of fantasy,” she said, “but bottom line is, it always needs a market.