Five years ago, a lot of people in the US still had doubts whether it is generally possible to earn money on nanotechnologies, but starting from this year it has become apparent that it is. However, venture investors putting money into a similar business should take into account peculiarities of such innovative projects. Factors impacting venture companies’ decisions to invest into development and manufacturing of a certain nanotechnological product, as well the nanotechnology market were described by the Executive Vice-President of US venture company Harris&Harris Group Alexei Andreyev at the National University of Science and Technology “MISIS” (Moscow Institute of Steel and Alloys) on May 16.
Alexei Andreyev is convinced: nanotechnologies require special competences. Investors dealing with nanoprojects should know this area very well – ideally, they should be former scientists
Despite the economic slump, worldwide interest to nanotechnologies keeps on growing. Within the last ten years, the US government financing of research studies in this area increased by dozens of times, the number of scientific publications grew, quantities of people involved in nanotechnologies continued to go up. Besides, final nanotechnological output market is thriving. According to the data quoted by Alexei Andreyev, its growth in the USA makes about 25–30 percent a year.
At that, Alexei Andreyev has pointed out that, on a large scale, nanotechnologies per se are not needed by anybody: “People do not wish to see anything new that has no analogues nowadays yet. They do not want flexible solar cells because they do not know what to do about them. They say: “Give us computer memory that would be better and cheaper than the current one”. If nanotechnology helps you to do that – that’s wonderful, if not – this nanotechnology is not needed at all”.
Investments into the nanotechnologies (that are however needed) not always but often unite in themselves drawbacks typical of investments into other areas of innovative activity. For example, investing into a company that deals with software does not require that much funding, however, the market for supposed final output has not been defined. The authors of a new computer application are simply unable to answer precisely whether people would use their product. Developments in the biotechnology area, on the contrary, need larger amount of financing, but it can be approximately calculated at the beginning how many people would purchase the final output. Let us assume that investments are made into a new drug against cancer, it is clear that all oncological patients become potential consumers of the drug.
“If you invest into nanotechnologies, you need very big quantities of money right from the start, like in biotechnologies, but you have not got the faintest idea what the ultimate market would be.
Venture capital is much closer toa poker game than to a game of chess. During a game of chess you can see all pieces on the board but during a poker game you have to pay for each playing card”, – said Andreyev.
In addition to that, according to his words, nanotechnologies require special competences: investors involved in nanoprojects should know this area very well – ideally, they should be former scientists. Besides, they need enormous patience: innovative projects in this area are normally long-term ones – lasting for at least 7 to 10 years. “I do not know if there are any investors of this kind in Russia. It seems to me there are none yet”, believes Andreyev.
Such investors are available in the United States. One of similar venture companies is Harris&Harris Group, where Alexei Andreyev is employed. The company has been in the market since 1983, but it started to invest exclusively into nanotechnologies since 2001. Nowadays, Harris&Harris Group’s portfolio by 45 percent consists of investments into companies, the activity of which is connected with clean technologies, and by a quarter – it consists of investments into electronics, 15 percent falls on medical nanotechnologies, and as much again falls on the companies working in other directions of this area. The choice in favor of nanotechnologies was forced by several reasons, which, however, are common for the majority of venture capitalists, who decided to invest into nanotechnology business. The main reasons are trends inside the academic community itself.
“Back in the early 2000s, when we came over to some big Western university, caught postgraduates in the corridor and asked: “What area would you like to be engaged in?”, the overwhelming majority answered: “We want to deal with nanotechnologies”. Postgraduates gave quite a number of answers to the question why the chose nanotechnologies specifically, said Alexei Andreyev. When, on the one hand, you see that all researchers want to deal with nanotechnologies in different industries starting from power engineering and finishing by electronics, and on the other hand, you have an opportunity to become the first player in this area, thus determining future of your investment company, the choice is to be made”.
The first ROI has been received by Harris&Harris Group only now, after the elapse of ten years.
“The average age of a nanotechnological company, which succeeds, is 7 to 9 years. It takes ten years to go from opening to the moment when nanotechnology was put into production a wide-scale implementation started. Probably, this can be done within seven years, but I do not know the cases when something can be achieved within five years”, summed up Andreyev.
Owing to such longevity, the companies involved in the nanotechnological business, practically never “die”. “If your business is not going well, you can dismiss almost all staff. For example, to assemble a pilot unit, you only need five persons – and they will assemble it within a year. Or – you know how to make some nanopowder, just two students will prepare this nanopowder for you and you will sell it. As a result, nothing happens to the companies that deal with nanomaterials and experimental equipment: these companies do not grow because the market is small, they are not purchased by other companies, and they do not die”, Andreyev assumes.
Despite such “survivability” of nanotechnological projects, the Executive Vice-President of Harris&Harris Group has nevertheless pointed out that his company estimates investment risks as 50 percent. By the way, risk of investing in a certain project in this area is directly proportional to its final output integration level. “Presumably, we are producing nanopowder . We either sell it in bags or pack it up in packets, or we insert these packets into a filter, etc. The more things we have managed to integrate (the company earns 30 to 40 percent on each of them), the more we can earn, explained Alexei Andreyev. But the higher the product integration level is, the more money should be invested there, the longer it takes. This is an additional nanotechnological risk”.
Another peculiarity of the companies working in this industry is a human resource. According to Andreyev, there are practically no experienced people available – they all work at large companies, where it is practically impossible to entice them from. “They think in a different way, they act differently, they have a different vision of life. These people are, as a rule, extremely inert and unable to move”, he said and pointed out that this circumstance provides competitive advantages for young and ambitious students and postgraduates who would like to dedicate their lives to the nanotechnology business. Young innovators got the opportunity to take advantage of these benefits right after the lecture as Andreyev had promised to introduce them to the “right people” (Harris&Harris Group itself is unable to invest projects outside the USA). After such offering was made, a long queue of those who wished to communicate lined up to him to socialise. The outcome of this communication remains to be seen see in a decade.