From golden to liquidation: Why NanoOpto failed

09/01/2007

BY CHARLES CHOI

Regarded as a golden child in the nanotechnology field as recently as a year ago, optical components firm NanoOpto announced on July 23, 2007 that it has sold its assets.

Although nanotechnology analysts find NanoOpto’s fall unfortunate, they note the acquisition of all of the company’s assets by API Nanotronics, a publicly traded, Toronto-based electronics components supplier to the defense and communications sectors, suggests that the applications NanoOpto pioneered will continue forward in the market.

NanoOpto was started in 2001 in Somerset, N.J., by licensing the IP of nano-imprint lithography company Nanonex for application to nano-optical devices and for use in their manufacture. Nano-imprint lithography essentially acts like a miniaturized rubber stamp, pressing molds into a soft polymer to create detailed patterns with features down to nanometers in size. The process does not rely on expensive and cumbersome optics and lasers, making it simple and cheap.

NanoOpto was seen as having a bright future, raising more than $50 million in venture capital over its existence and being one of the first nanotechnology start-ups to reach the market. In 2006, NanoOpto was even recognized by nanotechnology analyst firm Lux Research as the number-one nanotechnology start-up company for partnership value. Still, on July 23, API said it had acquired all of NanoOpto’s intellectual property and manufacturing equipment. Phillip DeZwirek, API’s chairman and CEO, says, “We now have the technology and facilities to deliver next-generation nanotechnology products. This puts us ahead of schedule in terms of capabilities we hoped to offer our customers.”

What happened?

Ultimately, NanoOpto fell because of investor fatigue, explains NanoOpto CEO Barry Weinbaum.

Why investors lost heart

“The company was more than six years old, and a lot of money had gone into it, and some of the investors had been very loyal and had been with NanoOpto for a long period of time,” says Weinbaum. “Combined with how long the projected time frame was for more revenue, the board made a decision that it wanted to sell the company several months ago.”

Lux Research senior analyst Vahe Mamikunian notes that NanoOpto had been making subcomponents “that were comparable in price with others on the market but with higher quality, such as an infrared filter used on the lens of cell phone cameras.” But NanoBusiness Alliance executive director Sean Murdock notes, “Those were relatively low value-added components, and their volumes weren’t big and profitable enough to materially change their growth trajectory.”

In attempting to penetrate markets in Asia, “doing so can take years to accomplish, and I think they ran out of runway before they got there,” adds Murdock.

The business model NanoOpto pursued was ambitious. “They were hoping to work with various device manufacturers on integrating components together-an approach that would have minimized the size and cost of optical devices,” explains Mamikunian. “Unfortunately, they needed other companies to go all the way with them, and that didn’t happen as much as they hoped to. Their business model did see limited success, but unfortunately not enough.”

NanoOpto did have to contend early on in its history with the crash of the telecommunications industry in 2001. “They had a hard road to face, reinventing themselves after the telecommunications bubble went bust,” says NanoBusiness Alliance’s Murdock. “Still, they managed to develop new technology and survive. Nonetheless, that was not an insignificant setback.”

Silver lining

Douglas Jamison, president of Harris & Harris Group, one of NanoOpto’s investors, says: “Clearly this outcome was not a homerun, but I think NanoOpto did a fantastic job of developing their technology. You never want to see credible technology floundering and going nowhere, so it’s a good thing that this technology will still live on.” Murdock agrees, saying, “The important part is that people still see value in the technology and are going to continue to push forward to bring it to market.”

NanoOpto’s fate should not reflect on other companies using nano-imprint lithography, such as Obducat in Sweden or Molecular Imprints in Austin, Texas, says Mamikunian.

“Those companies are pursuing applications for nano-imprint lithography, but are pursuing it incrementally while selling tools and working with device-makers on how best to use those tools. That slow-and-steady business model seems to be a winning opportunity in this situation.”