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Home > Nanotechnology Columns > Fullerex > Achieving industry integration with nanomaterials through financial markets

Tom Eldridge
Director and Co-founder
Fullerex Limited

Abstract:
Much research has been done on the synthesis and characterisation of nanomaterials but comparatively less effort has been spent in building a viable and sustainable route into the commercialising of nanomaterials. It has been noted that a growing number of entrants to the market are university spin outs and the largest difficulty these companies typically face is prioritising development objectives and alliance building, owing to the limited time and financial resources that SMEs have (Lubik and Garnsey, 2008). The practical considerations for choosing the most efficient routes to market and achieving business growth will be the focus for this column.

January 8th, 2014

Achieving industry integration with nanomaterials through financial markets

Despite the considerable promise of nanomaterials for various applications, integration by industry has been slow due to uncertainty of HSE and regulatory issues, lack of agreed material standards, price confusion for buyers, supply insecurity and often limited sources of financing for producers. If we look at the number of consumer products that are estimated to contain nanomaterials as a rough indicator of the uptake of nanotechnology across society then we can perhaps consider The Project on Emerging Nanotechnologies database "The Consumer Product Inventory" as a barometer. The inventory currently estimates over 1,600 products in the market. If this seems like large number, consider that single companies can be responsible for manufacture of thousands of products. In reality this is just a drop in the ocean and we are far from ubiquitous integration.

It is also worth noting that many products are not well labelled for the presence of nanomaterials. As "nano" has been associated with considerable hype, the term is often employed as a marketing strategy to differentiate a manufacturer's products against competitors by suggesting the existence of a leading technology, despite some products neither containing additives nor themselves being at the nano scale. Conversely, some manufacturers may consider the term "nano" to provide a negative perception among consumers and therefore detrimental for sales. It is unclear exactly how this trend will continue, since it can vary between industries and even geographies. Short term, regulation may dictate that labelling for certain markets is made clearer, however over the long term it is likely that as the hype subsides we will see less unnecessary references (in the same way that many household items and appliances do not generally advertise that they contain computer chips).

The conventional wisdom of business development strategies for nanomaterial producers suggests that industry partnerships sourced through networking events provide the most reliable route. However since these partnerships often focus on technological capabilities from the outset, one problem that often arises is the miss-match of producer resources to demand from the end-buyer. For example, consider a manufacturer of consumer goods looking to incorporate nanomaterials into their product to achieve some performance advantage. Firstly the supplier will need to be able to provide the materials in the specification that can meet the end-users performance objectives and the product development may also require additional complimentary technologies to bring the new product up to sufficient technology readiness level. Secondly, before the buyer can roll-out the new product on commercial scale they will also need the following: supply of nanomaterials at the volume, speed and cost that the industrial end-user requires and security of that supply (which may include multiple sources of supply for the same nanomaterial grade). When there is any financial risk to trade and/or the burden of R&D that may not lead to commercial success, progress in the market and development of new materials and technologies becomes stifled.

Synergies between companies with complimentary technologies can lead to attractive partnerships, but these are not always easy to identify. In addition, any imbalance of resources between parties can lead to less attractive terms such as exclusivity placed on a producer, which limits revenue streams and creates fragmentation in the market. Monopolising development of technology in this way also hampers the spread of that technology into new and novel applications. Aside from building on technological capability, challenges exist in ultimately financing production. Initial funding programmes play an important role in getting research and development off the ground, but beyond this trade needs to be realised and the production capacity of nanomaterial producers is sometimes orders of magnitude away from commercial requirements. Upscaling production is a capital intensive process and without sufficient capital reserves, nanomaterial producers are left with financing routes from external sources which either demand high interest rates or dilute ownership of the business. Without entering new supply chains and achieving upscale of production in a financially sustainable way, nanomaterial producers can face a "valley of death" scenario.

These challenges are overcome in other industries through structured commodity markets. Fortunately the nanomaterial marketplace also now has a commodity exchange system; the Integrated Nanoscience and Commodity Exchange (INSCX™ exchange: http://inscx.com/ ) which was launched in 2010 (McGovern, 2010). INSCX™ exchange is the world marketplace for HSE accredited, validated and compliant nanomaterials, nanocommodities, objects and devices. The Exchange is also active in trade of more traditional commodities including polymers, titanium dioxide, base oils and minerals due to the strong synergies between these materials and their application in industry, alongside the emerging applications for various nanomaterials.

One of the main roles of any commodity exchange is to finance production. Upscale financing provides material suppliers with a tool to enable trade and growth but also reducing risk and cost involved in raising production capacity. Since many nanomaterial producers are often small to medium sized companies and university spin outs, a commercial order from a buyer can potentially outstrip their throughput/capacity by orders of magnitude. This represents a supply risk for end-users and a barrier to obtaining commercial orders for suppliers who often lack the internal capital to finance their production upscale. An Exchange though, provides the facility for upscale financing through Forward sale to either enable trade which otherwise would not occur or to increase traded volumes by providing producers with the means to closer match buyer demand.

Perhaps equally as importantly, a structured market system provides producers with better visibility of the materials demand from industry and the ability to pool resources and expertise to collectively respond to it. As is the case for structural and bulk applications for example, Exchange members are able to access facilities for formulation, processing and large-scale batch manufacture of polymeric nanocomposite materials, including contract R&D projects and access to an IP library between member firms and academia affiliates for a range of other industry applications.

The importance of standardisation also cannot be overestimated to overcome price confusion and supply security issues for end-buyers, which are currently significant barriers to industry adoption of nanomaterials into commercial supply chains. The notion that standardisation is in some way an attempt to lump nanomaterial types together and categorise them as the same, to instigate a "race to the bottom" with regards pricing is a common misunderstanding of terms. (The idea that a product which can be traded and referred to as a commodity has to be necessarily high volume and low cost is also a mistake - If we look for example at the precious metals market, platinum trades at approx $50 per gram). No one would claim that nanomaterials produced from different suppliers using different production processes should be bundled together as interchangable commodities of equal value. On the contrary, different material grades need to be distinguished and identified/characterised as such, in order to provide transparency and fair pricing which currently does not exist for many nanomaterials. The Exchange therefore is an institution that can apply material characterisation standards that emerge from various metrology and standards organisations in a commercial context to provide transparency to the marketplace.

Achieving sufficient supply certainty can also mean that a buyer may insist on multiple sources of supply, however the nanomaterial market has been slow to standardise material grades to respond to this challenge. For example, a large company such as Samsung would not be able to commit to commercial manufacture of a product that relied on material supply from a sole SME supplier. The Exchange however, can provide the environment where producer firms can licence their process technology to other suppliers, authorising them to sell the same material grade. In this way end-users can mitigate their supply chain risk by achieving reliability of supply for a particular material grade from multiple sources. Quality assurance and accreditation of goods for any specified purchase order can be secured across supply sources by audit, inspection and characterisation methods. Buyers are further protected by trade insurance that covers all Exchange participants. The proprietary IP of material supply firms licencing their process technologies to other suppliers in this way is entirely protected, since a royalty fee is agreed and paid to the rightful owner of that IP on each and every trade of that licenced material grade which is recorded through the exchange commercial reporting system.

The benefits of an exchange, some of which are outlined above, can be used to enable or at the very least expedite trade and integration of commodities into industry and ultimately society. In a market as nascent and potentially game-changing as the one in nanomaterials may perhaps be, utilising tools such as these is vitally important to help achieve a critical mass in the wide-spread, safe and sustainable integration of these diverse and incredible materials.

About Fullerex:
Fullerex is a merchant member of INSCX™ exchange, authorised and approved to trade various grades of nanomaterials, nanocommodities, polymers and titanium dioxide: http://fullerex.com/

References:
S. Lubik and E. Garnsey, "Commercializing nanotechnology innovations from university spin-out companies". Nanotechnology Perceptions 6 (2010) 155-178. doi:
10.4024/N23LU08A.ntp.04.03

C. McGovern, "Commoditization of nanomaterials". Nanotechnology Perceptions 6 (2010) 155-178. doi:
10.4024/N15GO10A.ntp.06.03

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