 |
Jan. 13, 2005 – The fundamental objective of most businesses is to create wealth for their shareholders. This is typically achieved through business models that foster revenue generation, royalties from licensing, and other methods for increasing share price.
When management’s sole focus is on the development of technology at the exclusion of other business activities that can generate revenue, at some point cash reserves will dwindle and the company will be at risk of a meltdown.
 |
The biotech boom a decade ago illustrated this dynamic. Many companies were successful at raising investment dollars to develop technology, but too few had developed business models that transformed technology into revenue-generating commercial applications, be it pharmaceuticals, medical devices or agricultural products.
This observation was made clear to me during an investment panel at a biotech conference in 2002, where various biotech investors had predicted that between 30 and 70 percent of the companies in their portfolios would die in the next three to five years. The reason? They’re just doing technology; and there’s no business model.
My question is, how many nanotech pure plays will face a similar fate? Five or 10 years from now, will there be any firms calling themselves nanotech companies?
Nanotechnology is not an industry on its own, but rather a series of advanced technologies that can greatly improve products, services and processes in existing industries. To make the transformation, you have to make sure that your business plan is going after real markets, and you have the right resources and partnerships to make it happen.
I like nanotech companies that align their business models with roadmaps, where an industry is evolving along a technology trajectory, and the nanotech solution will be a candidate for a potential standard within two to seven years.
A good example is Catalytic Solutions, which has a material that is going to replace platinum in catalytic converters. Platinum is $500 an ounce. Catalytic Solutions’ nanomaterial is a fraction of that, which can offset some of the switching costs for new customers.
There’s a lot of indication that the demand for platinum in catalytic converters is going to increase due to stricter environmental regulations in the United States and Europe, and untapped markets in China and India that at some time are going to want cleaner air. Many auto companies would prefer an alterative source to South African and Russian platinum mines, which carry political and other risks.
As a result, there’s an opportunity for a better performing, lower cost, U.S.-based manufacturing source.
Another angle is if you have a micro or nanotech solution that greatly impacts significant financial transactions of a major player, be it a government buyer or a multinational corporation. Your firm could be a desirable acquisition target because you’re potentially the next-generation solution that will cannibalize real revenue streams.
You’re going to be of interest to the market leader, and to potential competitors who want to break into that market. NanoGram Devices Corp. was acquired in March 2004 by Wilson Greatbatch Technologies Inc. Greatbatch is a world leader in battery systems for medical devices. Now they have an emerging battery technology that could fit right into their technology trajectory.
If you’re a rational investor looking at micro- and nanotechnology, the first question I’d ask is, “Is there a market for what you’re trying to develop, be it in nanotech, low tech or no tech?” If the answer is no, maybe you should walk away