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Following the dramatic hype and eventual bust of the Internet and telecommunications sectors, the debate over the future of nanotechnology has been pitched. On the one hand, its promise has been held out as the next big thing. On the other, it has received little private investment because it’s considered still the stuff of scientists, not entrepreneurs. Now another voice has spoken on the subject. A white paper jointly published by the London venture capital investor 3i Group plc, the Economist Intelligence Unit and the Institute of Nanotechnology says nanotechnology will indeed ripple through a wide range of industries, and for investors that can weed through the hyperbole, there are promising investments to be made. The report points to a consensus that the ability to manipulate material billionths of a meter in size will spawn new products in the computing, healthcare, communications and energy industries. The trick is divining the time line for commercially viable products. Many wary venture capitalists say the sector is still too immature. “Nanotechnology, to us, isn’t an area for venture investing,” said Richard Whiting, a general partner at DynaFund Ventures in Torrance, Calif. “We’ve looked at many deals, and almost all of them are too ‘researchy’ for venture capital. You need a commercial application in a real market where the nanotechnology provides a competitive advantage for the product.” Thirty-six of the nearly 100 scientists, investors and corporate executives surveyed for the paper agreed that the biggest challenge facing nanotechnology is finding commercial applications for the science. The specialists also question whether nano-based products can be mass produced, their oft high costs and a lack of coordination between funding sources and management talent. Hype is clearly a concern, given the lofty expectations. The National Science Foundation expects the total market for nanotechnology products and services to reach $700 billion by 2008 and exceed $1 trillion annually in little more than a decade. With that in mind, a cottage industry of conferences on the subject have popped up, and many startups are using any excuse to tout their technology as having a nanotechnology component. Yet the report warns that hype might cause a backlash against investing in the area if that doesn’t materialize. At the heart of concerns, according to those surveyed, was a misguided promise that nanotechnology can “fix everything.” The report warns that many of the more popular applications of nanotechnology, those in the biosciences, are a long way off. Other applications, particularly in the materials and composites manufacturing market, are already being sold. German materials company Nanogate Technologies AG, for example, has a dozen nano-based products on the market. French cosmetics giant L’Oreal SA is one of the top patent holders of nano products. Asked which sectors represent the most commercially promising sectors over the next five years, 36 percent pointed to paints, pigments and coatings using powders derived by nanotechnology. In the next 10 to 15 years, those surveyed thought personalized drugs and products used to diagnose disease would emerge as leading commercial applications. The fear of hype, though, must be balanced with measurable activity, warned the report. For instance, Japan’s government spending on nanotechnology has quadrupled from $113 million in 1998 to $466 million in 2001, according the Hitach Research Institute in Tokyo. The U.S. is also increasing research efforts. The government allocated $370 million in research through its National Nanotechnology Initiative in 2000. The figure will rise to $604 million in 2002. Companies developing uses for the science are also making progress. According the the Derwent World Patent Index cited in the paper, global patents related to nanotechnology exploded from 771 in 1996 to 1,976 in 2001. Maybe it is the fear of diving into the next overrated technology sector or perhaps it is a true understanding that the commercial uses of the technology are still limited, but Josh Wolfe, managing partner of New York-based Lux Capital Group and co-founder of the NanoBusiness Alliance, said actual venture investments in nanotechnology-related startups have not reached the levels expected. “This is not the next high tech bubble,” Wolfe said. “Absolutely not.” The NanoBusiness Alliance said nano-related startups received $100 million in funding from corporations, angel investors and venture firms in 1999, $500 million in 2000 and $800 million in 2001. It predicted that activity would reach $1 billion in 2002 and $1.2 billion next year. For now, it appears that a headlong rush into the nanotechnology sector is being tempered by skepticism. “Its time is coming,” Whiting said. “But it’s not here yet.” �Copyright 2002, The Deal, LLC. All rights reserved.

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