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Chief Operating Officer
FENA and WIN Centers, UCLA
In my spare time, like many of us, I take joy in thinking about potential investment options to pocket some extra cash. If I had $1M in hand what would I do in the nano-space? I would become an angel investor, target some hot public traded nano-enabled companies, start-up a patent troll company focusing on some high growth nanotechnologies and purchase some quality nano domain names.
July 31st, 2007
Making $CASH$ by betting on nanotechnology & nanoelectronics
In my spare time, like many of us, I take joy in thinking about potential investment options to pocket some extra cash. If I had $1M in hand what would I do? Since I am writing a column in nanotechnology and nanoelectronics, I thought it would be fit to base this lush hypothetical around this area. Here is what I would do:
Angel Investing (15% allocation)
A great deal of nanotechnology and nanoelectronics evolve around various start-ups and many are small cap privately funded ventures. To tap into this I would sign up with an angel group (such as the Los Angeles Tech Coast Angels) where member fees are about $1500 and a minimum annual investment required is about $50,000. Expected internal rate of return on investment ranges from 20-30%. According to the "Money-Tree Report" by PricewaterhouseCoopers the Tech Coast Angeles closed on 7 deals compared to Intel Capital that closed on 15. In 2006, biotechnology was the single largest industry sector with $1.5 billion going into 102 deals, unseating software, which is traditionally the largest sector.
Patent Trolling (50% allocation)
Patent Trolling is a derogatory description for firms which typically acquire patents and use them to extort money from legitimate businesses by suing or threatening to sue. The largest patent troll is run by Intellectual Ventures. Press accounts have estimated that the firm has gathered some 3,000 to 5,000 patents, an order of magnitude greater than that of any other purported troll. Microsoft has funded Intellectual Ventures of up to $76 million. The realism of exercising legal patent rights was recently demonstrated between Research in Motion (manufacturer of the BlackBerry) and NTP, which led to a $612 million settlement. Closer to nanotechnology, Harvard recently licensed more than 50 current and pending patents to Nano-Terra that includes patents covering various nanotechnology such as soft lithograph which could potentially be used to make next generation microchips. Similar patent rich nanotech startups include Nanosys, Molecular Imprints, Nantero and Zyvex. Given the mass of dormant patents sitting in Universities, I would establish a firm that sifts through University patents and obtains exclusivity in niche high growth technologies such as nanopatterning (44% growth), solar cells (30% growth), CMOS image sensors (13% growth) and other fundamental inventions based on physical limits to nanoscaling such as phonon engineering and high mobility planar devices. Doing so, I would then contract or recruit seasoned marketers to aggressively license the IP.
Stocks and ETFs (25% allocation)
A large number of nano enabled companies are publicly traded. Such companies span from old giants such as IBM, Intel and GE and newer IPOs such as Nanophase Technologies and the Harris and Harris Group. Various indexes do a good job at grouping these stocks. As many nanotechnology ventures promise to change the world, many on the other side warn of hype. An example is the recent disappoint by Britain's highest-profile publicly traded nanotech startup, Oxonica. The stock price recently plunged nearly 75% quoting one of its key catalyst products failed to work as expected for one of its largest clients. With that said, I would mix-up my nanotech stock portfolio to include picks such as NVE (NYSE: NVEC) working in the space of spintronics and already licensing its IP to some large cap companies where revenue is up 35% in a 12 month period and Luna Innovations (Nasdaq: LUNA) working on technologies that cover products for military and medical applications. Growth potential exists for product sales and licensing opportunities while revenue in the meantime is safely complemented by numerous SBIR contracts. Publicly listed nanotech companies have stumbled as a result of business strategies that placed too much emphasis on IP and produced too few results in terms of revenues, so caution here is required. From an aggregate perspective, nanotech exchange traded funds and indexes haven't done very well. The three famous ETFs include PowerShares Lux Nanotech ETF (AMEX: PXN) gaining 6% over the past year, The Merrill Lynch Nanotech Index (AMEX: NNZ) gaining 1% and the ISE-CCM Nanotechnology Index (Index: TNY) gaining 1%. In comparison the S&P 500-stock index appreciated 16% in the past 12 months. So to conclude, I would balance my portfolio with both old and new nano enabled stocks along with an allocation towards an ETF or two.
Domain Name Investing (10% allocation)
This is probably crossing the line, but it's pretty hard to resist looking at this space as a serious investment opportunity. Domain name investing is seeing explosive growth and becoming a sophisticated investment tool attracting the most flamboyant and refined venture capitalists. I would acquire www.nanotech.com and www.nanotechnology, www.nanoelectronics.com, and www.nano.com. To get a taste of domain valuation, www.nano.com is valued at $100K (according to swiftappraisal.com) which currently belongs to Nanomix. An estimate of domain name appreciation is at about 94% (according to DomainMart). Investing in domain names seems to make sense considering the one sided supply-demand relation.
When gambling in any investment tool pegged to nanotechnology keep in mind the following comment by Jack Uldrich, president of the consultancy NanoVeritas Group, "It is a common mistake to think of it as an industry. It isn't. Nanotechnology is more of a general-purpose technology, like electricity or the Internet. Because of this, I have always encouraged investors to think of nanotech's potential less from the perspective of what it is and more from the perspective of what it will allow existing businesses to do."