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Aug. 7, 2003 — If the second quarter is any guide, some small tech companies are “growing up.”

Late stage investments accounted for more small tech venture dollars than in previous quarters and experts say small tech startups — especially in nanotech — are defining themselves more by the markets in which they operate than by the technologies they use.

“Companies have refined their market strategies,” said Alex Wong of Apax Partners, a venture capital firm active in small tech. “For example, rather than saying they are working on energy, electronics or life sciences, I’m now listening to companies talk about solar cells, chemical sensors and implantable medical devices.”

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Second-quarter data show that late stage funding in micro- and nanotechnologies increased significantly compared to 2002 and the first quarter of 2003, according to a Small Times analysis of the PricewaterhouseCoopers/Thomson Financial Venture Economics/National Venture Capital Association MoneyTree Survey, which tracks venture activity in the United States.

Of the $242 million invested in 23 small tech funding events in the second quarter, $158 million went to late stage companies in seven events. As a result of the later, larger rounds, small tech accounted for 5.6 percent of the total $4.3 billion deployed in the period — a significant increase over the first quarter’s $162.2 million.

“The early stage companies that were funded over the past few years are growing up,” Wong said.

Three of them, in fact, were responsible for nearly half the second quarter’s dollars. Late stage rounds from California companies Nanosys Inc. ($38 million reported in two funding events), Infinera Inc. ($40 million, one event), and Catalytic Solutions Inc. ($32 million, one event) were the largest small tech rounds of the quarter.

Nanosys is developing nanotech-enabled systems for photovoltaics, flexible electronics and biosensing applications, while Catalytic Solutions uses nanostructured materials in catalyst formulations. Infinera is developing microphotonic chips.

While large late-stage companies fattened the overall dollar figure, they also pumped up California, which netted $160 million in 11 events, versus $108.3 million in nine events for the first quarter. Massachusetts was a distant second with $27.5 million invested in three events.

Biotech topped the industry list, with nearly $112 million in nine funding events, ahead of the Networking and Equipment and Industrial/Energy categories.

Venture capitalists say small tech is attracting an increasing amount of investor attention as it matures. “The activity level is high,” Wong said. “The momentum is there from the point of view of companies sending business plans with a nanotechnology flavor.”

Alexei Andreev, a research associate active in nanotechnology at the venture capital firm Draper Fisher Jurvetson, agreed that there is increasing competition among venture firms for nanotech deals. That trend, he said, amounts to a slight shift in the balance of power between entrepreneurs and the venture capitalists who fund them.

“The situation is changing,” Andreev said. “It’s moving from an investor’s market to a more balanced situation.”

Barry Kramer is a partner with Fenwick & West LLP who issues a quarterly report on venture deal terms in the San Francisco Bay area. According to Fenwick’s Q1 report, the tough terms that venture investors demanded from entrepreneurs in 2002 remained through the first quarter of 2003. However, the report concluded that the venture market could improve in response to better performance in public markets and other factors.

“Based on preliminary Q2 information,” Kramer said, “the conclusion we made at the end of Q1 that terms would start to improve in Q2 seems to be occurring.” However, he cautioned, all the data are not yet in. His second quarter report is due out later this month.

That’s not to say the pendulum is swinging back quickly. “The siege mentality has kind of passed,” Wong said, but “nanotechnology is not at the frenzy level. People are being very reasonable with pricing.”

If there is a decidedly “rational” exuberance for small tech, it could be just in time for companies that foresee a revived exit market.

“We’re seeing some uptick in the public markets,” Wong said. Venture capitalists and entrepreneurs are also reporting more interest from large companies in strategic investments and collaborations, both of which can be a path to acquisition.

However, Wong said, investors are still preparing themselves for the long haul and are looking more carefully at the total cost of a project rather than just the initial investment. “They’re taking a more holistic view.”

Kramer, for his part, takes a holistic view of his own, linking larger economic realities to the private equity market. “So long as Nasdaq continues to improve and so long as there are not significant negative events in the outside world, I think the venture and entrepreneurial markets will continue to improve,” he said.

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July 25, 2003 — Imagine your kitchen blender conks out the day you’re hosting a large cocktail party. You search an online catalog, decide on a model, and click the “buy” button. But instead of waiting three days for the appliance to be shipped to your door, a new kind of printer on your desk springs into action. Layer by layer, the miraculous machine squirts out various materials to form the chassis, the electronics, the motors — literally building the blender for you from the bottom up in a matter of hours.

Call it desktop manufacturing. For gadget geeks in need of instant gratification, it’s a miracle. For designers deep in the iterative prototyping process, it’s a revolution in product development. And thanks to small tech, it’s becoming a reality.

University of California, Berkeley engineering professor John Canny and his colleagues are building such a printer. They call the technology “polymer mechatronics” or, more simply, flexonics. The revolutionary approach to desktop manufacturing is enabled by recent advances in 3-D printers, organic electronics and polymer actuators.

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Three-dimensional printers are commonly used to make prototypes of new product designs. For example, a designer may load a digital design into a Fused Deposition Modeling machine. The FDM then extrudes thin beads of ABS plastic in .01-inch layers, until you have a completed passive functional part or device. While the printers are dropping in price, the leap from producing passive to active devices is monumental. That’s where organic electronics come into play.

Organic electronics were born in the 1970s when researchers discovered that chemically doping organic polymers, or plastics, increases their electrical conductivity. Since then, researchers have worked to develop the most effective and inexpensive organic compounds that can be patterned on flexible substrates to create useful circuits. In the private sector, companies ranging from Bell Labs to IBM to UK startup Plastic Logic are also working to develop quality organic transistors that are fabricated far more cheaply than silicon circuits. Organic semiconductors will most likely first hit the market in the form of inexpensive radio-frequency identification (RFID) tags and flexible display screens.

Canny’s co-investigator in Berkeley’s flexonics effort, Vivek Subramanian, is one of many researchers harnessing the microfluidic precision of inkjet printing technology to deposit organic semiconductors in desired patterns. The key ingredient in Subramanian’s organic circuits is “liquid gold.” Synthesized in his laboratory, liquid gold consists of gold nanocrystals that are only 20 atoms across and melt at 100 degrees Celsius, 10 times lower than normal.

The gold nanocrystals are encapsulated in an organic shell of an alkanethiol (an organic molecule containing carbon, hydrogen and sulphur) and dissolved in ink. As the circuit is printed on plastic, paper or cloth using inkjet technology, the organic encapsulant is burned off, leaving the gold as a high-quality conductor.

Combining Subramanian’s circuit printing technology with a 3-D printer enables electronics to be embedded within the housing of the device being printed. The chassis and the electronics are fabricated as one single structure.

The next step is to add the actuators that provide electromechanical capabilities to the devices — for instance, a mechanism that causes the blender’s blades to spin when switched on. For this, Canny plans to fill inkjet cartridges with electroactive polymers that contract when zapped with a voltage, enabling components to flex in desired directions. Additionally, the polymers generate a voltage when compressed, so buttons and switches can also be embedded within the printed devices.

While Subramanian hones his organic semiconductors, Canny and his graduate student Jeremy Risner are designing a “vocabulary” of mechanical components — joints, grippers, transmission systems — suited for the 3-D printing process.

Flexonics is still in its infancy, but the technology’s potential raises questions about what it will mean to be a consumer in an era of devices-on-demand. You’d no longer pay for a product, Canny says, you’d pay for plans. I look forward then to a generation of do-it-yourself industrial designers, tinkerers who tweak commercial product designs to improve and customize them. How will I access the fruits of their labor? Peer-to-peer plan networks, of course, where designs for blenders and mobile phones and TV remote controls are swapped like so many MP3s.