Nanotechnology companies aren't like typical tech startups. New nanotech outfits tend to stay small for years because venture capitalists are squeamish about putting money into them. They tend to be run by researchers with years of lab work under their belts, rather than college-dropout whiz kids with a dandy idea.
And, gasp, many of the hottest nanotechnology companies aren't in the usual tech hubs of Silicon Valley, the Route 128 belt around Boston, or the Research Triangle Park area of North Carolina.
Indeed, nanotechnology has thrown an egalitarian lifeline to communities that were largely shut out of the high-tech and biotech booms of the last three decades. While it's too soon to call this the Revenge of the Rust Belt, nanotechnology's best and brightest clearly are spread all over the country in areas ranging from an Oklahoma college town to suburban Cleveland to Albany in snowy upstate New York, where local officials have invested big in a nanotechnology research center (see BW Online, 2/4/05, "New York's Big Hopes for Nano").
A BACK SEAT FOR VCs. "The coastal bias of the biotech and IT waves derived from the fact that the leading universities, management teams, and venture capitalists were all on the coasts," says Matthew Nordan, an analyst at Lux Research, one of the few market research firms to specialize in the nanotechnology sector. "In the case of nanotechnology, which owes much more to advances in materials science than to genetic engineering or software design, these centers of activity are more evenly spread."
Nanotechnology also owes a lot more to government funding than private funding, which goes a long way to explaining why it's distributed across the country. In 2004, 45 private nanotechnology investment deals were done for $196.4 million, according to research conducted by David Forman at the publication Small Times. The research was aided by the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Assn. Of those deals, about half were in California, mostly in Silicon Valley and San Diego -- about the going rate in high-tech and biotech.
But venture capitalists aren't the dominant investors when it comes to nanotech. By comparison, the federal government is spending nearly $5 billion per year on nanotechnology research. That's why a company like SouthWest NanoTechnologies calls Norman, Okla., home. It was founded four years ago by the University of Oklahoma with help from energy company ConocoPhillips (COP), the National Science Foundation, the NASA, the U.S. Energy Dept., and Oklahoma Center for the Advancement of Science & Technology -- nary a venture capitalist from Silicon Valley's famed Sand Hill Road in the bunch.
WHY RELOCATE? Also, with the talent pool from which nanotechnology companies draw so broad -- ranging from experts in new textiles to defense contractors -- a company won't find more skills in Silicon Valley than in, say, Colorado, says Nordan.
Nanotechnology startups just aren't an awful lot like their high-tech or biotech brethren in what they produce or in their roots. Take Nanofilm, a company in suburban Cleveland that's making nano-based materials to do everything from making Stealth bombers harder to detect to plastic eyeglasses sturdier. Founder Scott Rickert was a professor at Case Western Reserve University in Cleveland -- which has one of the top materials research programs in the country -- before he started Nanofilm.
With good reason, he never thought of doing it somewhere else. Locals call Northeastern Ohio "Polymer Valley." With big tire manufacturers like Goodyear (GT) and Firestone, paint giant Sherwin-Williams (SHW), and a number of auto-parts makers based in the area for years, Polymer Valley has a rare expertise in materials research. It made sense for Rickert to keep his 70-employee company there rather than moving to Silicon Valley -- a move many high-tech companies inevitably make. "You have critical mass [for materials research] right here," he says.
EQUAL SHARE. Critical mass can't be dismissed. A combination of big, anchor companies like Intel (INTC) and Hewlett-Packard (HPQ), a workforce with particular skills in computer design and software, and a support structure of smaller legal and marketing companies with tech expertise have been a key to Silicon Valley's success since the 1970s. The field is still wide open for another area to duplicate that recipe for nanotechnology.
No doubt, the traditional tech hubs have the strongest hand with nanotechnology. As Small Times' study indicates, the bulk of nano venture-capital investments are going to California, just as they do with high tech and biotech. And some of the best-known nano-companies -- if there is such a thing -- with names like Nanosys and Nano-Tex, are in California's tech hotbeds.
But for the first time in decades, the rest of the country has a chance to claim an equal share of a new tech trend. The Intel of nanotech, whatever that company turns out to be, has just as good a chance of being based in Cleveland as it does in Silicon Valley. For cities tired of seeing their best and brightest head West to make a go of it, that could be the best news in years. By Jim Kerstetter, Technology editor for BusinessWeek Online