|Venture Capitalists Can’t Embrace Nanotechnology—Yet|
“It's challenging for VCs to wrap their arms around nanotechnology,” said Dykeman.
As the nanotech explosion continues, companies seeking investor support will have a lot to prove. Venture capitalists (VCs) want to see a return on investment—and most nanotechnology projects aren't anywhere near ready. Most are still in an academic setting.
In the last 10 years, VCs have funded fewer than 150 nanotechnology companies, according to Omar Amirana, MD, investment manager at Oxford Bioscience Partners (Boston).
“We're still in the infancy stages of the nanotechnology revolution,” said Amirana. “In the medical device world, I tend to think [of it as] a new process, but where's the product?”
A lot of VCs are afraid of nanotechnology, according to patent attorney David Dykeman, a lawyer at Greenberg Traurig LLP (Boston). VCs want to fund companies that have a product, and they don't want to fund science projects, he said. So many of them see nanotechnology as simply a technology in search of an application.
“It is challenging for VCs to wrap their arms around nanotechnology, but the VCs who do are heavily invested,” said Dykeman. He and Amirana spoke at the Massachusetts Medical Device Industry Council's (MassMEDIC) Nanotech for Medtech conference in April.
VCs need to see the ability to make a technology profitable. The way to get them excited about nanotechnology is to take it out of academia and move it into the commercialization stage, advised Amirana.
Firms must have a strong plan when approaching a VC. They need to be prepared to talk about how they're going to position themselves in the market, how much money is necessary, and why that amount is needed.
He also cited how biotechnology and pharmaceutical companies have partnered with nanotechnology companies, rather than engaging in acquisitions. One instance is the agreement between Oxonica (Oxfordshire, UK) and Becton Dickinson (BD; Franklin Lakes, NJ). In that agreement, Oxonica licensed its nanoparticle tagging technology to BD to create clinical diagnostics.
Large, successful medical device companies aren't acquiring nanotechnology companies either, because many see the technology as an “expensive, incremental improvement,” said Amirana. Some manufacturers don't want to make product changes unless they feel threatened by competition, he said.
He used the example of a syringe application. Although needle injection can be traumatic, painful, imprecise, and dangerous for the patient, it's also a decades-old, accepted, easy, and inexpensive method, he explained. If a company were to introduce a nanotechnology aspect to the simple concept of a syringe, it would need to understand what it was trying to displace and why.
Although it's not quite there yet, Amirana said medical nanotechnology could become a VC “sweet spot.” He predicted the technology will grow through corporate partnerships, but warned that VCs will remain selective in their investments.