Bashful vs. Brash in the New Field of Nanotech
March 15, 2004
By BARNABY J. FEDER
PALO ALTO, Calif. - When it came time to invite a
representative company to attend President Bush's signing
of a bill last December authorizing $3.7 billion in federal
spending on nanotechnology over the next four years, a
three-year-old Silicon Valley company named Nanosys got the
It is easy to see why. Painstakingly assembled by
experienced entrepreneurs, famous academic researchers and
big-name venture capitalists who know how to dazzle Wall
Street, Nanosys is the epitome of a start-up shooting for
It brandishes a portfolio of impressive patents, covering
processes like ways to make wires one ten-thousandth the
thickness of a human hair, and is pursuing research
projects that could affect consumer electronics, energy and
But for all its glamour and promise, Nanosys does not
expect to sell products commercially until 2006. For actual
sales and profits, one needs to look to a more prosaic
company, Nanofilm, a developer of optical coatings that is
based in an industrial park in Valley View, Ohio, outside
of Cleveland. It has been profitable since 2001.
"We're the quiet company," said Scott E. Rickert, a
51-year-old former chemistry professor at Case Western
University who has been president of Nanofilm since he
founded the company in 1983.
While Nanosys represents the aspirations of many of the 400
to 500 nanotechnology ventures that analysts say have
sprung up in recent years, Nanofilm's story may actually be
more relevant to the start-ups in the field struggling to
survive. Together, the two companies show the diversity of
the nanotechnology business landscape and some of the
uncertainties it holds for investors.
Nanotechnology, a term based on the nanometer, which is
one-billionth of a meter, has attracted investment not only
from privately held start-ups, but also from giants like
I.B.M., General Electric and DuPont, which are eager to
exploit the potentially valuable properties of materials so
small that their dimensions can be measured in molecules.
The federal government estimates that nanotechnology, a
catch-all label for products and processes that operate on
the molecular scale, will have a $1 trillion economic
impact by 2015.
It may take that long to sort out the business models best
suited to thrive in the nascent field.
Nanosys, based in Palo Alto, Calif., offers a model that is
particularly compelling to Wall Street. Its neighborhood is
home to Hewlett-Packard, Stanford University and some of
Silicon Valley's most prestigious law firms and venture
capitalists - the entrepreneur's equivalent of beachfront
property. Its scientific advisory board includes luminaries
like Dr. Charles M. Lieber of Harvard, a leader in research
on how to build nanoscale wires, and Dr. A. Paul
Alivisatos, a chemist at the University of California at
Berkeley whose research helped found the Quantum Dot
Corporation, a start-up company that makes crystalline
nanoscale tags that are used in the study of cell behavior.
Nanosys's chief architect and chairman, Larry Bock, 45, was
already well known as a biotechnology entrepreneur and, by
his description, was semiretired when he became interested
in nanotechnology in 2000. "I had done reasonably well in
biotech," he said, summing up his track record involving 14
start-ups, with 12 of them going public or sold to other
companies for a total of more than $1 billion.
Dr. Rickert of Nanofilm, by contrast, had no business
experience and, he soon discovered, no ability to attract
investment from venture capitalists when he formed his
company. Instead of having wide-ranging patents from
leading university laboratories, he had only his own idea
for a new, unusually rapid way to make ultrathin,
superrepellent coatings for glass, plastic and metal
When he changed his company's name to Nanofilm from
Flexicrystal in 1985, the "nano" prefix had none of the
allure it had when Nanosys was started in 2001. Outside
molecular research circles, the name conjured up little
except "nanu-nanu," the way Robin Williams's goofy alien on
the television show "Mork and Mindy" said goodbye.
"I got a lot of grief," Dr. Rickert said in an interview at
the company's headquarters.
Mr. Bock's track record, the growing interest in
nanotechnology in the late 1990's, and his strategic
approach produced a much different reception for Nanosys.
He tells visitors he spoke to 1,000 researchers over an
18-month period before he and his co-founders, Calvin Y. H.
Chow and Steven Empedocles, settled on a name, business
plan and financial structure for Nanosys.
Nanosys's initial goal is to use its expertise in nanoscale
silicon structures and related inorganic materials to build
sensors and other simple products that its business
partners would manufacture. In time, it hopes those efforts
can become the foundation for more complicated devices like
silicon solar panels, powerful memory chips and thin films
for flexible electronic displays.
In essence, the company is creating a miniportfolio of
nanotechnology bets that will allow it to pick out the most
promising areas as some fall by the wayside and others
arise. Nanosys has raised $55 million from venture
capitalists like Venrock Associates, the venture arm of the
Rockefeller family, and smaller firms like Lux Capital and
Harris & Harris that are specializing in nanotechnology and
Nanosys has also raised more than $15 million from
government research grants and deals with business
development partners like DuPont, Intel, Matsushita
Electric Works and In-Q-Tel, the Central Intelligence
Agency's investment arm. Strategic alliances with big
businesses are fraught with dangers for small companies,
but one thing Nanosys and Nanofilm have in common is the
belief that they will need such relationships to turn the
new technology into profits.
With Nanosys's second round of financing, which brought in
$15.5 million in 2002, it far surpassed the total invested
in Nanofilm over its entire existence. Nanofilm started
with capital gathered from a small group of individual
investors led by Donald McClusky, who had recently retired
as vice chairman of Goodyear when Dr. Rickert set out to
commercialize his thin-film technology.
Dr. Rickert and Mr. McClusky managed to raise $1 million
from friends and family by 1988. That supported enough
development work for Dr. Rickert to persuade LensCrafters
in 1989 to pay Nanofilm to build two 1.5-ton robots to put
its high-strength, protective nanocoating on premium
eyeglasses. LensCrafters also agreed to pay a $4 royalty
for every pair of glasses sold. Nanofilm became profitable
the following year.
But Dr. Rickert's reliance on his relationship with
LensCrafters backfired in 1991 when the Persian Gulf war
broke out, the economy slumped and LensCrafters decided to
shut its manufacturing in favor of outsourcing its
production. Nanofilm shrank from 17 employees to 5. Dr.
Rickert eliminated his salary and the others were cut to 65
"We nearly went bankrupt," Dr. Rickert said. The company
survived only because a lens-cleaning solution it had
developed turned out to be popular with opticians and grew
into a profitable line of products under the Clarity brand
Today, Nanofilm's films use nanostructured properties to
keep rain off binoculars, preserve the shine on expensive
faucets and protect display screens on A.T.M.'s and laptop
computers. Other films from the company resist fogging or
are scratch resistant.
"The company we are most like is International Flavors and
Fragrances," said Dr. Rickert, referring to the world's
largest producer of food flavorings and scents for
household products and cosmetics. "We sell very small
quantities of our materials at high prices. I can do it
anywhere in the world with just a few people." In fact,
Nanofilm has become a multinational with a small sales and
distribution outpost in the Netherlands.
Later this year, Nanofilm will distribute its first
consumer product for the auto market - an antistreaking
windshield coating that mimics the nanoscale structures on
the surface of lotus leaves that repel dirt. A couple of
drums of the material's active compound could be made in a
month's time and would be enough to treat every windshield
in the world, Dr. Rickert said.
When a raindrop or a bug hits the coating, which is
intended to be applied once a year, the pressure melts the
surface molecules for an instant, causing anything on the
surface to slip away, Dr. Rickert said. But "it's not
perfect," he said, noting that because of its electrical
characteristics, the film attracts some dust.
Still, such innovations have kept Nanofilm growing and,
since 2001, steadily profitable. Revenues topped $15
million last year, Dr. Rickert said. The company began
paying dividends to its 40 investors in 2001 and now has 65
Nanofilm's ambitions, though modest compared with those of
Nanosys, are expanding. Dr. Rickert said his goals included
increasing revenues to $30 million to $50 million over the
next five years.
If Nanofilm hits an area of research that requires a huge,
rapid investment with potentially high returns, the company
might try to spin that project off into a company backed by
venture capital, he said.
Dr. Rickert, however, does not want to expose Nanofilm to
venture capitalists and investment bankers who might be
impatient for growth and might push to sell the company or
take it public. Instead, he said, Nanofilm will borrow
money when necessary and continue to pursue joint
development agreements with major customers, like its
four-year-old partnership with Carl Zeiss Inc., the
American subsidiary of the German high-performance optics
"We're on an exponential growth curve," Dr. Rickert said.
"We feel like it's our decade but it's on our schedule."
Such caution and focus provide no guarantee against losses.
But Nanofilm's approach does prove that profits can be made
If the field is to become an important economic engine, in
all likelihood there will have to be hundreds of small
companies like Nanofilm exploiting different niches.
Whether those smaller companies will be operating in the
shadow of a successful giant called Nanosys - or
reminiscing about how sweeping ambitions could not save a
well-financed, well-placed start-up - is harder to predict.