Nanotechnology -- The Next Industrial revolution

When the White House introduced the National Nanotechnology Initiative (NNI) in 2000, they said:

If you have actively been trying to keep up with the latest scientific trends, then you have most likely read about
nanotechnology. The hype level surrounding it is large and growing. But, then again, the promise is nothing
less than a revolution that will affect us all.

We have heard people discuss nanotechnology as though it is a product – something one can build a
company around and invest in. Actually, nanotechnology has a quite different meaning. The NNI defines
nanotechnology as follows:

Manufacturing methods that utilize nanotechnology are in use today in making tennis balls, clothes,
electronics, medicine and a myriad of other things. In fact, at this writing, we know of over 1,000 companies
that claim to be working in nanotechnology in at least 11 vastly different industrial sectors.

This paper will attempt to describe nanotechnology, discuss its impact in investment today and the
possibilities it portends.

Some Basics About Nanotechnology

The best way to think about nanotechnology (as it relates to business) is probably as a method of
manufacturing things at the molecular level. One of the best video explanations of nanotechnology we have
every seen was done a few years ago by Ralph Merkle (3) (who was a Nanotechnology Theorist at Zyvex
Corporation and is now a professor at Georgia Tech College of Computing).

A nanometer is a billionth of a meter -- this is almost unimaginably small. It is at the nanometer size level that
researchers are working, which is where the term “nanotechnology” comes from. The overall idea is to
manipulate molecules to build useful things. That is, we want to combine molecules in such a way as to
make products.

Nanotechnology, then, refers to “the ability to work at the molecular level, atom to atom, to create large
structures with fundamentally new molecular organization”.   (4)

The results are products with molecular precision, high efficiencies and few, if any, defects. And they may
even be less expensive.

Why Nanotechnology?

If you start at the molecular level, you have precision at the molecular level, and therefore, better quality and
repeatability than could otherwise be possible. Again, citing Merkle, products made using these methods
would be “lighter, stronger, smarter, cheaper, cleaner and more precise”. (5)

And this is not just a pipe dream. There are a number of companies that are already using refinements made
at the nanometer size level to improve their products. General Motors is using lighter, stronger materials
based on nanoparticles in some of their vehicles (as one researcher said, “if you have weight savings, you
have fuel savings”). (6) Wilson is producing premium tennis balls with nanometer-thick rubber interior
coatings and Burlington uses nanocoatings to provide protective layers in its coats. (7) And there are many,
many other examples.

The Next Industrial Revolution

There are a lot of numbers being thrown around about the size of the “nanotechnology market”. It’s been
reported that, in 2005, $32 billion in nano-enabled products were sold worldwide. (8)

Dr. M.C. Roco, a Senior Advisor for Nanotechnology with the National Science Foundation, put the projected
world market of products with nanotech components at $1 trillion by 2015, representing an increase of 2
million new jobs. (9) More recently, Lux Research projected a $2.6 trillion market for nanotechnology-enabled
product by 2014.   (10)

At the October 2005 Foresight Conference in San Francisco, the keynote speaker was Carl F. Kohrt, CEO of
Batelle. He broke down the $1 trillion figure like this (in the billions of dollars): (11)

These kinds of forecasts portend a new industrial revolution – a change so vast that it will profoundly affect
each and every one of us.

A key indicator in all this excitement can be found by analyzing the activity of the US patent office. The have
been so many patents issued that relate to nanotechnology that the US patent office recently created a new
class (Class 977 Digest 1) with over 250 new subclasses to address just nanotech-related disclosures.
Although we have no definite number, we can estimate (based on conflicting numbers from others) that there
are probably somewhere between 2,500 and 4,000 issued US patents that directly relate to nanotechnology,
with something close to 3,000 or 4,000 new applications being received annually (another related indicator
was seen at a recent nanotechnology conference; a presenter pointed to the sponsor list and noted there
were 6 companies, 4 research institutions and 8 law firms).

Certainly within the next 10 years, we could see nanotechnology in drug delivery, energy storage, displays and
environmental cleanup. In the decades following, we should see it in quantum computers, molecular
manufacturing and fuel cells.

We’re talking about a major change, hopefully for the better, in people’s everyday lives.

What's the Latest on Nanotechnology?

As of June 2006, we counted 1,068 companies in the database of Nano Investor News that claim to be
working in a field related in some way to nanotechnology (including some that are working in “small”
technology).   (12)

In June 2006, the National Center for Manufacturing Sciences published a report (funded by the National
Science Foundation) titled “2005 NCMS Survey of Nanotechnology in the U.S. Manufacturing Industry”. In it,
18% of the nearly 600 respondents said they were already marketing nanotechnology products and an
additional 64% said they would be doing so within the next 5 years. (13)

In addition, Lux Research indicated that there are 1,500 companies that have "announced intentions to
pursue nanotechnology strategies". (14) Almost all major universities have nanotechnology centers
(including MIT, Caltech, Stanford, Yale, UCLA, and dozens [maybe hundreds] of others (15) ) and governments
are pumping billions of dollars into nanotechnology research. In fact, the money spent on nanotechnology
makes it the largest scientific initiative since the Apollo mission. (16)

The following table indicates the reported amount of money spent on nanotechnology-related research and
development since 1997. However, it should be kept in mind that these numbers could be a little deceptive.
The definition of “nanotechnology” varies from country to country, so what one part of the world considers nano
may not fit another’s definition. In addition, there are some variables as to what constitutes government
investment as opposed to contracts, etc.

Government spending on nanotechnology (in millions of dollars) (17)

Companies are also spending a huge amount of cash in nanotechnology research, totaling $3.8 billion in
2004. (18) In 2002, Nano Investor News reported that their database had identified 490 companies involved
in nanotechnology. As we stated earlier, that same website reports 1,068 companies today. There are
certainly many more.

We are sure that the majority of these are good companies that are striving to bring better, less expensive
products to the marketplace.

But, there needs to be some caution in all this growth. Whenever there is a “hot” area for investors and
business, there seems to be a lot of hype. During the “dot com” era, the markets were flooded with
companies built on hype and little more. With no real business basis, many (if not, most) of the “dot com”
companies eventually failed.

There could be some “cashing in” on the term “nano”. Apparently, many companies that claim to be working
in “nano” do not actually qualify as true nanotechnology companies. In a 2002 Forbes article, Josh Wolfe (a
co-founder and managing partner of Lux Capital, as well as the author of the Nanotech Report – a monthly
publication from Forbes) portrayed many companies as “nano pretenders”. While discussing some of the
shortcomings of apparent “major” nano players, Mr. Wolfe described others as "hype". He wrote of the desire
of companies in the past to use "tech" and "dot-com" in their names to get attention from Wall Street; today,
the word is "nano". (19)

What’s next?

For nanotechnology to become truly widespread, there are a number of difficulties that must be overcome.
The NCMS report referred to earlier surveyed small and large American nanotechnology companies and
found that the largest barriers to full acceptance and use of nanotechnology in the U.S. today include high
costs, regulatory concerns and intellectual property matters (there were other barriers listed as well, but these
seem to us to be the more valid issues. (20)   The processes need to become standardized and united with
other manufacturing techniques.

In summary . . .

100 years ago, we didn't have:

Plastics
Birth control pills
The integrated circuit
Penicillin
The personal computer
Commercial air travel
Radio
Television

. . . and countless other innovations.

With nanotechnology, the differences between today and 100 years from now will be even more astounding.
The 2000 press release issued by the White House when they announced the National Nanotechnology
Initiative also read, in part:

We couldn't agree more.

1 National Nanotechnology Initiative Leading to the Next Industrial Revolution, White House press release, January 21, 2000.
2 National Nanotechnology Initiative website: http://www.nano.gov/html/facts/whatIsNano.html
3 Ralph Merkle, The Incredible Shrinking Science, TechTV, 2002
4 National Nanotechnology Initiative, June 2002
5 Ralph Merkle, It’s A Small, Small, Small, Small World, Technology Review, Feb/Mar 1997
6 Ellen Fussell, Tiny Science Thinks Big, InTech, June 1, 2004
7 Eric Roston, Very Small Business, Time, September 15, 2002
8 Nanotechnology in $32 Billion Worth of Products; Global Funding for Nanotech R&D reaches $9.6 Billion, Lux Research
Press Release, dated May 8, 2006
9 M.C. Roco, National Nanotechnology Initiative Overview, ASME Workshop Presentation, September 22, 2004
10 Charles Pillar, Science’s Tiny Big Unknown, Los Angeles Times, June 1, 2006
11 Carl F. Kohrt, Achieving the Nanotech Vision: Multiple Horizons for Beneficial Applications, 13th Foresight Conference on
Advanced Nanotechnology, October 24, 2005
12 www.nanoinvestornews.com
13 2005 NCMS Survey of Nanotechnology in the U.S. Manufacturing Industry, National Center for Manufacturing Studies, Ann
Arbor, MI, June 2006
14 Spending on Nanotechnology to Top $8.6 Billion in 2004, Lux Research press release, dated August 17, 2004
15 A list of research institutions can be found at the website www.nanoinvestornews.com
16 Nanotechnology Patents and Challenges, Patent Café Magazine, May 18, 2004
17 Sources include: The US National Nanotechnology Initiative (which accounts for most of the government spending in
nanotech by the US); NanoInvestorNews; Nanotechnology: Where Does the US Stand? Matthew M. Nordan, testimony before
the Research Subcommittee of the House Committee on Science, June 29, 2005.
18 Nanotechnology: Where Does the US Stand? Matthew M. Nordan, testimony before the Research Subcommittee of the
House Committee on Science, June 29, 2005
19 Josh Wolfe, Beware of Nano Pretenders, Forbes, August 1, 2002
20 2005 NCMS Survey of Nanotechnology in the U.S. Manufacturing Industry, National Center for Manufacturing Studies, Ann
Arbor, MI, June 2006
21 National Nanotechnology Initiative Leading to the Next Industrial Revolution, White House press release, January 21, 2000.

	1997	1998	1999	2000	2001	2002	2003	2004	2005
United States	$116	$140	$165	$270	$422	$604	$790	$1,593	$1,700
Western Europe	$126	$140	$165	$200	$270	$400	$650	$970	$1,100
Japan	$120	$113	N/A	$245	$465	$650	$800	$1,000	$1,700
Other Countries	$ 70	N/A	N/A	$110	$380	$500	$810	$996	$100