Guest Writer - Gastautor - Gast Schrijver

Nanotechnology and Venture Capital

 

To simplify a potentially long article, nanotechnology and venture capital at this stage can be characterized by this often made statement by some venture capitalists about investing in nanotechnology:

ďItís too early to invest in nanotechnologyĒ. This statement can be interpreted as:

1. I donít know what nanotechnology is

a. But I donít want you to know that.
b. But I donít believe in telling people that I donít know.
c. But then the media wonít quote me and put my name in print if I admit that I donít know.
d. This should be enough for me to say so I wonít put my foot in my mouth about this.
e. I like to appear to be cynical because it will make me look smarter.
f. I am a contrarian.
g. So I cannot invest in it.

2. I know what Nanotechnology is

a. But I am too risk adverse since the dot.com and biotech bubbles burst.
b. Iíll stick to what I know even though it wonít give my investors the ROI they want.
c. We only invest in late stage deals which are safer.
d. With the dot.com and biotech bubbles bursting, now we invest in late stage deals.
e. But VC funding is not appropriate at this stage. There is a funding gap that needs to be addressed. Depending on the stage of the company, angel investing or government grants may be more appropriate.

3. I read Michael Crichtonís ďThe PreyĒ. Nanotechnology is not for another 50 years at leastÖ

4. I am not aware that large companies like LíOreal, DuPont, BASF, Kodak, Ilford, etc. are already making money from nanotechnology process improved products to the average consumer.

a. I am not aware that large companies like Volkswagon, Air Products and Chevron are already investing in nanotech startup companies.

5. The typical nanotech entrepreneurs donít have enough experience.

a. The typical nanotech entrepreneur is a university professor and doesnít have enough business, marketing and sales experience to create and make their business model successful.
b. Itís a lot harder than they think. Itís even a lot harder than we think.
c. The nanotech companies donít know how to scale up.
d. The nanotech entrepreneur wonít accept outside help or give up a reasonable amount of control and equity for outside help and financing.
e. The nanotech entrepreneur doesnít know what he doesnít know about business.
f. The nanotech companies donít know how to put together a good management team.
g. The nanotech entrepreneurs donít have a realistic grasp on expenses, profit, their market and ROI.
h. We donít know how to manage deep tech PhDís.
i. Many of these nanotech companies would do fine with just angel investor money. The ROI and scale that we work at is much bigger and later stage.
j. This is why we take such a large equity stake so we can have more control in the business in order to offset this risk.

6. Nanotechnology is too big to get a grasp on.

a. I donít like a concept which doesnít make it easy for me to categorize and confine in a neat little box to sell it.

7. Thereís too much hype about Nanotechnology.

a. I am not sure how to tell when a company is a really a Nanotechnology company just because it has ďNanoĒ in its name.
b. I donít want to get caught in a nanotech investment scam (see World Nanotechnology Summit http://www.smalltimes.com/document_display.cfm?document_id=5823 and Ishoni Networks http://www.siliconvalley.com/mld/siliconvalley/7659988.htm)

8. I subscribe to the herd mentality of investing because I am a lemming.

a. I am having trouble finding and getting on the bandwagonÖI like bandwagons.
b. I donít know Steve Jurvetson or Charlie Harris.

9. But I invest in biotech in much more earlier and riskier stages with longer time horizon for and more risk with achieving ROI.

a. I donít remember or acknowledge that there was a biotech bubble as well as the dot.com bubble.
b. I may have and again be contributing to another biotech bubble.

10. But I invest in biotech even though much of it comes under the nanotechnology umbrella.

11. Even though I invested in dot.com startups with even riskier or nonexistent revenue generating business models.

12. I specialize in investing in hi-tech but to me hi tech is just IT and biotech.

13. What US$3.7 Billion nanotechnology fund bill?... (21st Century Nanotechnology Research and Development Act that President Bush signed into law Dec. 3, 2003)

14. I make a lot of money from management fees so I donít have an incentive to really maximize ROI for my investors even though nanotechnology will affect all industries globally.

a. Venture capital is largely unregulated so I am not penalized by my investors if our investments donít perform. When the investments donít perform we can blame it on the market because other VC firms with a similar investment strategy have failed too so we can absolve ourselves of responsibility. Of course, these days Iíve heard that LPís are now suing GPís.

15. The timing environment is not yet right so that I can use my normal Russian Roulette and machine gun investment strategy.

a. This is why I take so much equity stake in the companies we invest in. If one makes it big, it covers my losses on the others.

16. After downsizing, we have the same expertise since five years ago so we donít have anyone nor can we now afford to hire anyone with expertise in nanotechnology or anything else new for that matter.

a. However, we still invest in companies in our areas of expertise, even if they not optimal, so that we can collect our management fees. Otherwise we will have to give our LPís their money back.

17. Iím having enough problems salvaging the portfolio of investments weíre still invested in.

a. Iím having problems raising more funding from my LPís with which to invest since we lost more than half their money after the dot.com and biotech bubble burst.

18. I donít take the term ďventureĒ in venture capital so literally.

19. I actually said more than this but the reporter only quoted about 10% of what I said.

20. My friend said so.


This is a rather tongue-in-cheek article but more true than many people would care to realize or admit. Note that not all venture capitalists embody these characteristics and mindset. They may also exist in some combination thereof. This may be an indication that there is room for improvement in the relationship between venture capitalist and entrepreneur.

If you can think of some more contributions, Iíd welcome them. If we accumulate enough, perhaps there would be enough for a sequel article. I can be contacted at pearl.chin@seraphimaventures.com.


Science is unpredictable. Expect the unexpected.

Dr. Pearl Chin has an MBA from Cornell, a Ph.D. in Materials Science and Engineering from University of Delaware's Center for Composite Materials and B.E. in Chemical Engineering from The Cooper Union.

Dr. Chin specializes in advising on nanotechnology investment opportunities. She is also Managing General Partner of Seraphima Ventures and CEO of Red Seraphim Consulting where she advises investment firms and and startup firms on the business strategy of nanotechnology investments. She was Managing Director of the US offices and co-Managing Director of the London offices of Cientifica. Prior to that, she was a Management Consultant with Pittiglio Rabin Todd & McGrath (PRTM)'s Chemicals, Engineered Materials and Packaged Goods group. Dr. Chin will be advising the Cornell University JGSM's student run VC fund, Big Red Venture Fund (BRVF), on investing in nanotechnology.

She is a Senior Associate of The Foresight Institute in the US and was the US Representative of the Institute of Nanotechnology in the UK. She was an alternate finalist for a Congressional Fellowship with the Materials Research Society. She was also a Guest Scientist collaborating with the National Institute of Standards & Technology (NIST) Polymer Division's Electronic Materials Group under the US Department of Commerce. Dr. Chin is a US Citizen born and raised in New York City.

© Pearl Chin 2004

 

Dr. Pearl Chin