VCs start thinking small with nanotechnology

At least one venture capitalist believes that nanotechnology could become the most influential force to take hold of the technology industry since the rise of the internet - and he's willing to put his money where his mouth is.

Warren Packard, a venture capitalist from Silicon Valley firm Draper Fisher Jurvetson, said that even though the fledgling industry may be at a stage equivalent to Earth's primordial soup, that won't keep him and others from moving in to stake their claim. Nanotechnology is the science of building products out of components that measure less than one-billionth of a meter.

In the US, Europe and Japan, governments have footed most of the bill for nanotechnology research thus far. The U.S. government recently pledged to pump nearly $5bn into nanotechnology research between now and 2008.

But corporations and venture capitalists are beginning to eye the field as a potential source of new products and profits, according to Packard and other executives who spoke at this year's Nano Science and Technology Institute Nanotechnology Conference and Trade Show here.

Packard, who gave a keynote speech at the Nanotech 2004 show on Tuesday, said in an interview that his company plans to plow about 25 per cent of its $625m venture capital fund into nanotechnology companies over time.

"In the long run, when you invest in phenomena, you get the primordial soup - thousands of companies being created. Out of that primordial soup, you have a couple of survivors. Those survivors - companies such as eBay in the internet space - are going to be worth a lot more than all of the capital that was 'wasted' over the previous five years," Packard said during his speech.

Like the internet, nanotechnology has gotten a lot of hype, Packard said. But also like the Net, nanotechnology stands to influence many people's lives by making improvements in computers, consumer electronics, materials and even health care, producing previously unheard-of characteristics from basic materials such as carbon.

Developments in materials and manufacturing made possible by nanotechnology could also play a role in future PC processor or memory chip designs from chipmakers such as Intel. The company, for example, has partnered with and invested in Nanosys, a company that's working with new materials, called nanowires, that could be used to create semiconductors in the future.

Intel thinks that nanotechnology could usher in an age of proactive computing, in which networks of sensors - measuring environmental conditions, inventories and even people's personal health - provide data to semiautonomous central computers, David Tennenhouse, Intel's director of research, said in an interview at the show. Those computers could help their human counterparts keep track of the world around them with much larger amounts of data and provide early warnings for environmental emergencies, he said.

To date, Draper Fisher Jurvetson has invested in about 20 nanotechnology firms. Among them are FlexICs, which is working on flexible circuits for products such as flexible plastic screens; ZettaCore, which is working on molecular memory and Coatue, a nanotech start-up that Advanced Micro Devices quietly purchased last summer.

Packard said Draper Fisher Jurvetson will look to invest in about 15 additional companies per year. Among some of its requirements for investment: A business must be able to establish a large market within five years and avoid tangling with a well-established company such as Intel, DuPont or Dow Chemical, he said.

"People say, 'How can you invest in nanotechnology? You're 20 years way from what's going to happen.' Yeah, I'd say we're a little early. But we need to start somewhere," Packard said. "You must be present to win."

John G. Spooner writes for CNET News.com