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Nanotech: hype yes, bubble no

The increasing press coverage of nanotechnology development is beginning to worry some investors looking at this fledgling industry. But, says the Forbes/Wolfe Nanotech Report, while there may be a lot of hype surrounding the area, the telltale signs of a bubble are nowhere to be seen.

Is there a nanotechnology bubble forming? I get this question all of the time at conferences and from readers who email me.

I can't deny that there are plenty of signs of nanotech hype. Hype is a dirty fuel that often feeds greed and fear, and can have unfortunate consequences on the market or stocks. In the case of nanotechnology, first came a steady flow of articles in popular magazines and newspapers with headlines like ‘The Next Big Thing is Very Small' and ‘Big Hopes in Tiny Technology'. More recently nanotech has been cited in futuristic movies like Steven Spielberg's Minority Report, Spiderman and SpyKids-2. As a result, students want degrees in nanoscience. Governments spend more. VCs invest more.

Consider what happens when excessive hype raises expectations too high. When they aren't met, there are serious repercussions. Collapsing under the pressure and the hyper competitive environment, recent instances of fraudulent claims—at Bell Labs and Lawrence Berkeley National Laboratory added scientists to the growing list of people not to trust this year.

In my May 2002 Report, I warned readers of the many publicly traded ‘Nano-pretenders' that like the dotcoms before them, are putting nanotechnology into their names in hopes of catching the new wave of excitement in this field. Indeed, soon after, the Wall Street Journal ran an article warning that a nanotechnology bubble might be forming and USA Today recently published a similar story. None of us wants to be part of the next bubble. Well at least not the downside of it. But has nanotech already reached bubble status?

No. Despite the rise in media attention, I do not see any sign that asset prices are grossly overvalued. Nanotechnology is coming to fore at a time when venture capitalists are bloodied and extremely wary of new start-ups. Moreover, there are few publicly traded pure plays in nanotech and there is no IPO market to support overvalued assets. In fact, Capital IQ helped us confirm with the most liberal definitions of what counts as nanotech, $282 million of venture deals done in 2002, less than 2% of the $17 billion invested this year.

Most recently, a liberal environmental group, ETC Group, followed the opinion of Sun Microsystems' [SUNW] Bill Joy in calling for a moratorium on the manufacture of nanomaterials. The logic they espouse is that the benefits are outweighed heavily by the unknown risks. The enemy is not nanoparticles themselves, but the un-predictability of what may come from their use.

This is the plot for Michael Crichton's latest novel, Prey, which tackles nanotech's ‘grey-goo' scenario in a modern version of the classic story we know as The Blob.

Mark Modzelewski, executive director of the Nanobusiness Alliance says, ‘Crichton is a great fantasy writer and great writers make you believe they are on to something real and true - like Star Wars, Harry Potter or Jurassic Park. You'll no more see nano-robots destroying things in the backyard than you'll see your child put on Harry Potter's cape and fly around the neighbourhood on a broom. It's all good harmless fun, but people shouldn't confuse fantasy with reality.'

Here's a secret: I know someone developing billions of self-replicating nanoscale machines. Look in the mirror. It's you. Humans are made up of billions of cells that constantly run programs of maintenance and self-replication.

Certain nanomaterials could certainly prove to be harmful if mishandled. Quantum Dots may be toxic if ingested, but so is Windex. Carbon nanotubes may prove to be far more deadly than asbestos if inhaled, but so is paint thinner. The promise of nanotech is not just in developing new compounds, but in the precision manipulation of them to serve a function. Chemicals are nothing new. There are safety standards for handling volatile ones like ammonia, often used in the home.

But the fear factor and negative hype behind Crichton's book promotion amplifies the fear of misdirected discoveries, unintended consequences arising from incomplete knowledge and the intentional misuse of technology. So while the science of nanotechnology is new and inspiring, the moral dilemma is not. We've witnessed the same debate before: nuclear energy, hazardous chemicals, and recombinant DNA. All of which make prime centrepieces for fiction novels and great summer reading.

Remember: anything going into life-science markets still faces the rigorous and expensive FDA approval process, which screens for problems of toxicity and unintended side effects.

Believe me, I am not about to discount the market impact of societal concern over this very new science. One doesn't need to look any further than the protests against so-called ‘Frankenfoods' in Europe which resulted in hundreds of millions of dollars in lost opportunities. Less than 1 per cent of the National Nanotechnology Initiative is allocated to analyzing societal and environmental impact, but my sources on Capitol Hill recognize the importance of having open discussions to engender trust and public support. It would be a far greater disaster to see arrested development of technologies tha4 will improve the universal human condition in ways yet expected or imagined.

Technological change is far easier to predict than social change. One could predict Moore's law forward and understand the power we would have in 1996, but few could predict the social phenomenon of Amazon [AMZN] or EBay [EBAY] or the adaptability of a people to a technology. Richard Feynman has passed on, but his words are more relevant then ever: ‘For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.'

Copyright © 2002 Forbes/Wolfe

Josh Wolfe, the author of ‘The Nanotech Report' and the monthly ‘Forbes/Wolfe Nanotech Report', is a co-founder and Managing Partner of Lux Capital, focusing on investments in Nanotechnology and Software (Artificial Intelligence, Distributed Systems). He is a Senior Associate of the Foresight Institute for Nanotechnology, the Coordinator for the Institute of Molecular Manufacturing's Prize in Computational Nanotechnology, a co-founder of The NanoBusiness Alliance and a member of the Cognitive Science Society.

The Forbes/Wolfe Nanotech Report will help you to stay one step ahead of Wall Street and the nanotech revolution. You'll always know which nanotechnology companies are making new breakthroughs and about to see revenue soar. Visit www.forbesnanotech.com for more information.