Friday, January 19, 2007

Investing in Nanotechnologies

The following is an interview I did with Charles E. Harris of Harris & Harris Group (NASDAQ: TINY) in 2002. His answers hold true today and are worth reviewing, especially for those of you considering investing in one or more nanotech companies.

Regarding investing in companies developing nanoscale technologies

Given the vast number of nano-this and nano-that companies, how does one go about investing in a company with real potential?

One should approach small tech including nanotechnology the same way that one picks through the many opportunities in other, more mature areas of venture capital. Although no one has a crystal ball, and it is always difficult to pick the long-term winners in any group of early-stage companies, the same fundamental analysis applies to nanotechnology as to all other fields. Thus ideally, a nanotech venture capital investment should feature a great management team, solid business plan in a large market space that does not involve competing head on with the elephants, and proprietary intellectual property as an organizing principle -- and all at a reasonable valuation! If the investment is past the seed stage, the co-investors should also be first rate.

Do you expect to see the same kind of frenzied investing in nanotechnology as happened with the dotcom boom, or have we learned our lesson?

There will not be the sort of ease of entry into small tech including nanotech that there was into the dotcom companies. The better small tech companies have important intellectual property that typically has been the product of years of government sponsored research. Also venture capitalists are approaching small tech, at least so far, very prudently, because of the telecom and dot com hangover. For investors, small tech including nanotech will be more like biotech than like the dot coms -- there will be waves of relative enthusiasm by the capital markets, but the real progress will continue for decades with some great, enduring business franchises being created along the way.

Is there any one nanoscale technology of special interest to you or your firm?

Obviously we like computer memory and drug delivery, given that we have invested in Nantero and NanoPharma. But we want to be diversified so we are looking at a wide variety of nanoscale technologies, excluding only the really futuristic plays.

Read the rest of the interview here

Charles Harris has served as CEO of H&H since July 1984. Prior to then, he was Chairman of the investment advisory subsidiary of Donaldson, Lufkin & Jenrette, Wood, Struthers and Winthrop Management Corp. He is a trustee of Cold Spring Harbor Labs and of the Nidus Center. He is a graduate of Princeton University, and Columbia University Graduate School of Business.

Harris & Harris Group, Inc.®, is a publicly traded venture capital firm exclusively focused on investing in tiny technology. We use the term, "tiny technology," as MIT uses it—tiny technology encompasses nanotechnology, microsystems and microelectromechanical systems (MEMS). In fact, most of our portfolio companies are utilizing nanoscale-enabling technologies.

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