Nanotech Pioneer to VCs: You Don’t Get It
When Tim Swager talks about the future of nanomaterials, people listen. And when the respected nanotech leader says venture capitalists don’t get it when it comes to nano startups, you can’t help but sit up and take notice.
Swager is the head of MIT’s Department of Chemistry and the winner of this year’s prestigious $500,000 Lemelson-MIT Prize for invention. He has made his name in nanotech developing everything from ultrasensitive “molecular wire” sensors for detecting traces of explosives—currently used by U.S. soldiers in Iraq to screen vehicles—to fluorescent dyes that light up when they bind to amyloid protein molecules, which could enable doctors to make early diagnoses of Alzheimer’s disease using NMR and optical imaging. And Swager is no stranger to the startup process: he is a founder of Cambridge-based Iptyx, a nanomaterials spinoff that develops organic electronics and electro-optical materials for imaging and energy applications, and a technical advisor to Nano-C in Westwood, MA, Plextronics in Pittsburgh, PA, and Rhode Island-based Collegium Pharmaceutical. But these days Swager sees some serious hurdles when it comes to early-stage funding of nanotechnologies.
It wasn’t always like this, he says. Starting in the late 1990s, Swager witnessed an upsurge in nanotech funding that paralleled the dot-com boom, albeit on a smaller scale. “VCs a few years ago were not focused on the technology, only the market,” he says. “In general they were willfully blind to the competition, and I would say it was exactly like the folk tale about ‘The Emperor’s New Clothes.’ Nobody seemed to mind that there was nothing there in terms of the technology as long as they could claim a market.”
Times have clearly changed. “Now VCs seem to be very risk adverse in all areas but the biological sciences,” he says. “I don’t really understand the biological science focus. There is probably more risk there.”
Of course, nanotech companies have never received as much venture funding as biotech, and for good reason—commercially speaking, they remain largely unproven. Which is why most nano companies have relied on government and corporate funding, even during boom times. But Swager’s point is that nanotech has now been around long enough, and has demonstrated enough potential applications, that it should mitigate some of the risk from an investor’s point of view.
Upon further reflection, he adds, “Two problems with materials is that although they can be the enabling technology, they are far upstream from products and therefore do not command as big of a cut in the value chain. The frustration I have with the VC community is that new materials can find many applications and are really a platform technology. There are many ways to get inventions to market. Biotech has bigger potential payoffs but often—not always—has much more narrow focus.”
Given these challenges, what is Swager’s advice for today’s nano entrepreneurs? “If you have something with unique properties, keep pushing forward,” he says. “I suspect in the materials area, you will have to push it farther before getting VC money. However, if it can do something that nothing else can, then you will be successful.”
Some intriguing tech areas to watch, says Swager, are organic light-emitting and -absorbing nanomaterials for imaging devices and solar cells (“huge potential,” he adds), carbon nanotube and graphene-based electronics, and organic polymers for applications in the semiconductor industry. The latter could dramatically enhance the speed of integrated circuits by more effectively insulating one part of a circuit from another, thereby enabling chips to be packed much more densely. Swager is convinced this can be done practically. “The future,” he proclaims, “will be organics.”