Nanotech: Money Pit or Moneymaker?

Even after a project is funded, it takes at least another 18 months to staff up and get the research running, according to Cientifica. All told, a nanotechnology research project that is just starting today is quite possibly running on funds awarded in 2003. Of that $18 billion in funding over the past eight years, $12.4 billion has been allocated in the last three years. Once R&D starts, it usually takes seven years before it yields a marketable product.

"Even the earliest nanotechnology work ... funded from existing scientific budgets, will only now be yielding results," the report says. "As a result, venture capitalists and technology transfer officers dealing with nanotechnologies will find themselves increasingly busy over the coming years."

But if public financing of nanotech has been so slow to implement, wouldn't venture capital step in, sensing an opportunity to profit from governmental inefficiency? Well, actually, no. According to another report, this one from Lux Research, venture financing in nanotech companies has tallied up at $2 billion on 143 start-ups. According to Lux, governments and corporations have together spent 19 times as much in that period.

VCs take a bipolar approach to nanotech. They love the idea but balk at the reality of it. "VCs believe the nanotech vision but haven't found start-ups that can deliver on it," Matthew Nordan, Lux's vice president of research, said in the report. "VCs generally see nanotech as a more attractive field for investment than other domains -- yet VCs that have made nanotech investments see these deals as underperforming others in their portfolios on almost every measure."

Nordan says there are several reasons why nanotech investments are different: Start-ups require expertise in several scientific fields, few offer the short-term exit strategy that VCs look for, and because nanotech products are so novel, it's hard to gauge how buyers will value them.