If you examine who is delivering the majority of venture capital returns in nanotechnology, it is application-oriented life sciences companies, says analyst firm Lux Research. Yet venture capitalists are consistently providing more funding to companies in other areas.
"Healthcare and life sciences companies have accounted for a staggering $1.68 billion of the $2.57 billion total valuation of nanotech start-ups at IPO [initial public offering]," says analyst Jacob Grose. "Correspondingly, revenue multiples at IPO have been an order of magnitude higher for the healthcare segment [206.2x on average] than in the four other segments we track, yet last year more nanotech VC deals closed in manufacturing and materials than in healthcare and life sciences."
That's because "gas prices and global warming make the crises in energy and the environment really visible," Grose says. However, he notes, the need for beneficial nanomedicine remains strong.
"So there are great investment opportunities -- and sketchy ones -- in both areas, and you really need to examine each company's scientific value closely to find value."
That's just one of the findings in Lux Research's new report, "How Venture Capitalists Are Misplaying Nanotech." The report also notes:
- The top 5% of venture-backed nanotech start-ups, measured by cumulative capital invested, have received $1.24 billion since 1991, which equates to 32% of cumulative venture capital funding through 2007.
- The energy and environment segment attracted the most nanotech venture capital in 2007, with 17 deals worth $227.2 million.
- The United States accounted for 90% of total venture capital activity by value.
Jurron Bradley, who leads Lux Research's nanomaterials practice, says that start-ups that are tailored toward a small number of specific applications "tend to be" more successful than firms developing broader platforms with no clearly defined purpose.