How a MacGyver of the Semiconductor Industry Plans to Rescue Nanosys
Jason Hartlove has a name and a rakish mug worthy of a soap-opera star, a resume that any Silicon Valley engineer would envy, and a bit of swagger as a turnaround CEO. He co-invented the optical mouse at Hewlett-Packard, ran a 3,000-employee manufacturing operation for HP spinoff Agilent in Malaysia, and set South Korea’s struggling MagnaChip Semiconductor on its current path to an IPO. “One of my investors said this—so I won’t claim it for myself—but I am a technology MacGyver,” Hartlove says. “If you give me some piece of technology, I can really figure out what to do with it.”
But at Palo Alto, CA-based Nanosys, where he took over as CEO in October 2008, Hartlove may be facing his biggest challenge yet. With an impressive portfolio of patents based on work at MIT, Harvard, UC Berkeley, and other institutions, the nine-year-old company has repeatedly been described as one of the most promising in a batch of nanotechnology startups that emerged around the turn of the millennium. In its early years, it investigated areas like solar cells and display electronics where it was thought that nano-engineered materials could lead to higher power output or greater efficiencies. But real commercial applications for nanotechnology insights have been slow to emerge, and Nanosys has yet to bring a single product all the way to the market (the first is set to appear in the fourth quarter of this year, if all goes according to plan).
“The clock is ticking for Nanosys…since its financial backers are counting on a return on investment in another three to five years,” wrote Technology Review magazine. That was in 2004—just a few months before Nanosys called off a planned IPO that still hasn’t happened.
After the pulling the plug on the IPO, “the company sort of struggled a little between 2005 and 2007 about what exactly its mission was,” Hartlove told me earlier this week. “It continued to do some directed research but didn’t really have an eye toward commercialization.” The shakeup year was 2008: CEO Calvin Chow was let go, former Symyx Technologies CEO and Venrock partner Steve Goldby became the company’s interim leader (he’s still chairman today), and the board recruited Hartlove to find Nanosys some real products.
It wouldn’t be a stretch to call Hartlove’s tactics since 2008 MacGyveresque, and so far, he hasn’t even used a Swiss Army knife. He has focused the company on the two research programs that seemed most likely to produce marketable products in the near future. And he has pushed forward one of them, a “QuantumRail” component that increases the brightness and efficiency of LED backlights for mobile device displays, to the point that the company is earning “real revenue from real paying customers,” in Hartlove’s words. The first customer is LG Innotek, which plans to use the QuantumRail in 5 million phone-sized displays by the end of 2010; its purchases recently contributed to Nanosys’s first break-even month.
Demand for the nanocrystals that go into the QuantumRail, as well as the high-capacity anode material that Nanosys is developing for the lithium-ion battery industry, is growing fast enough that the company will soon need to find larger quarters outside Palo Alto, Hartlove says. And within 18 months, he says, the company hopes to be in a position to restart the IPO process. “We’ll have display products on the market, battery products on the market, a track record of revenue and profitability,” he says. “Those are the milestones.”
At least one Nanosys investor, Lux Capital, seems to buy into Hartlove’s optimism. “Things have really accelerated and they’re on a rapid path to success,” says Josh Wolfe, a managing partner at the New York-based firm, which contributed to a $40 million venture round for Nanosys in 2005. “Jason is quickly commercializing Nanosys’ deep nanotech expertise and attracting great partners in big markets, some of whom will be disclosed soon. I can say he has zeroed in on some really critical high-growth markets including batteries and lighting with urgent pain points that Nanosys is uniquely or exclusively positioned to solve.”
But finding the right pain points to treat has been a long process for Nanosys. The company was set up in 2001 by Larry Bock, a serial biotech entrepreneur (now a special limited partner at Lux Capital, and a San Diego Xconomist), along with founding CEO Calvin Chow and founding business development director Stephen Empedocles. As scientific cofounders, Bock signed up stars of the academic chemistry world, like UC Berkeley’s Paul Alivisatos, Harvard’s Charles Lieber, and MIT’s Moungi Bawendi. The company secured the rights to fundamental patents in areas like nanowires, Lieber’s specialty.
“Larry Bock had a great concept, which was to go out and see what kind of nanotechnology he could gather up from leading research institutions and bring into the company,” says Hartlove today. “He hypothesized that this technology would be very useful, but no one knew what for, at that point in time. It was like real estate. If you see a beautiful piece of land near the ocean, you can hypothesize that people are eventually going to want that, that roads will get built, and all these other things will happen.”
But the road-building in the nanotech field was a lot slower than anyone expected. Government research funds and venture investments, including a $1.7 million Series A round in 2001 and a $38 million Series B round in 2003, allowed the company to pursue what Hartlove calls “directed research” on a wide variety of applications. These included silicon nanowires for more efficient thin-film transistors for liquid crystal displays (LCDs) and semiconductor “nanorods” that, the company’s researchers hoped, would convert sunlight into electricity more efficiently than traditional silicon photovoltaic panels. But despite partnerships with companies like Sharp, Matsushita, Intel, and Micron Technology, the startup wasn’t able to produce materials that had a significant cost or efficiency advantage over existing products.
When the board brought in Hartlove in 2008, “They asked me to have a look at what the company had been doing, where we were at the moment, and give a recommendation on, really, what there was here to do anything with,” the CEO says. “Several different options existed. We could easily have closed the company and tried to find a way to sell the IP rights off to various people and give the cash, which we still had a substantial amount of at the time, back to the investors. We could have scaled the company way down or split it up into a lot of different pieces. What I recommended was that there were several technology areas that we had within the company that were very close to being production-ready.”
Based on his knowledge of the semiconductor and device industries, Hartlove felt that there were two areas in particular where Nanosys had done advanced lab work that could be commercialized quickly. One was quantum dot phosphors, which became the basis of the QuantumRail. The other was silicon nanostructures for battery anodes, which have the potential to double the capacity of lithium-ion batteries within the next few years.
“Having a whole lot of patents and IP is useless if nobody at the company is using the technology,” Hartlove says. “You have to get the technology into the market, and I first and foremost tried to focus on areas where I felt we could do that.” That’s where some of Hartlove’s Silicon Valley experiences, and his improvisational skill, came in handy.
The story of the optical mouse is illustrative. If you have a computer mouse with an optical tracking device on the underside—as virtually all mice do these days—you’re using technology Hartlove helped to pioneer at HP back in 1997. Before that time, most computer mice contained rubber balls. A change in a mouse’s position was detected by rollers that measured the ball’s rotation on the X and Yaxes. The technology worked—but if you owned a desktop PC back in the early 1990s, you probably remember how the mouse balls attracted dirt, hair, and other detritus.
HP had developed optical scanning technology that, in theory, could detect position changes by taking a high-resolution picture of the surface underneath a mouse hundreds of times per second, then comparing one image to the next to see which features had moved. The problem was that the technique was slow and processor-intensive.
Hartlove and his colleagues realized that there was no need to obtain a perfect image of the surface, or to try to find perfect correlations from one image to the next. They wrote new algorithms that oversampled the surface—capturing 2,500 frames per second—and then immediately threw out most of the data, looking instead for images with just enough in common to provide basic navigational cues. “It was much easier to oversample like crazy and look for good data than to take huge samples and do huge operations,” Hartlove says. “We were able to take that, myself and a couple of other guys, and turn it into a low-cost, high-volume component that replaced the ball and eliminated all the drawbacks that people found with that technology, such as cleaning and choking hazards. We shipped a billion units before I left the company.”
Hartlove applied this focus on practicality at Korea’s MagnaChip, which Francisco Partners and Citigroup Venture Capital had acquired from financially troubled Hynix in a 2004 leveraged buyout. “The task was to go in there and turn what had been a very internally focused semiconductor group into a multinational company that had customers like Motorola and Nokia, instead of specialty products done for local Korean customers,” he says. “It was similar to HP, in that there were a lot of great technologies that were completely undirected as far as where they were going and what kinds of markets they had.”
He applied the same approach at Nanosys. The company could have used its nanorod technology to go into the solar panel business, or its nanowire technology to become maker of thin-film transistors. But a far more practical and sustainable strategy, Hartlove says, was to identify niches where Nanosys could help other companies make better products. “The largest organization I ever ran was about 3,000 people at Agilent in Panang, Malaysia, and I know what that’s like,” he says. “To take this company and build that capacity is not really a very smart thing to try. Instead, I said we will look for these places where we can make our contribution in a way that no one else can, so we can be highly differentiated.”
One of those places, Hartlove decided, is the lighting industry—specifically, LED backlights for LCDs. Most cell phone screens, an increasing number of laptop screens, and a small but growing number of desktop monitors are now lit by arrays of LEDs rather than traditional fluorescent bulbs. LEDs are brighter and more efficient than fluorescent lights. But the brightest, most efficient types of LEDs are blue, meaning their light must be augmented with yellow light from Yttrium-Aluminum-garnet (YAG) phosphors to make white light. And the problem with YAG-augmented LEDs, Hartlove says, is that their spectrum is fixed around a sort of yellowish white. “If you’d like more aquas or greens or reds, for example, you are out of luck,” he says.
Nanosys has a technology for making phosphors whose color output is much more tunable than YAG phosphors. By growing Indium phosphide nanocrystals or so-called “quantum dots” to precise sizes, the company can make phosphors whose emissions peak at any wavelength a manufacturer wants. “By combining different batches of colored phosphors together, we can even get multiple peaks, giving a customer exactly what he’s looking for in terms of red, green, and blue color characteristics,” Hartlove says.
The result is striking, as Hartlove demonstrated by showing me prototype phone and laptop screens illuminated by LEDs containing Nanosys phosphors (see the photo below; the Nanosys screen is on the lower left). Nanosys-powered screens have far richer reds and greens than their conventional counterparts. That’s a feature that could appeal both to consumers, who increasingly use their phones to take, browse, and share photographs, and to the design community, which depends on monitors with accurate color ranges to preview multimedia materials for print and digital distribution.
But Hartlove’s next trick was to actually get the Nanosys phosphors into such devices. He suspected the company would have difficulty selling the material directly to LED manufacturers. “The guys who really care about color are display manufacturers,” he says. “They needed a way to integrate it. What we came up with was a strip of material called a QuantumRail, a thin piece of material that contains quantum-dot phosphors formulated to their specifications.”
The Nanosys QuantumRail is definitely MacGyver-worthy: it’s designed to be glued to an existing screen component called the light guide, an optical panel that spreads light from LEDs evenly beneath an LCD screen. This way, display makers can continue to use plentiful blue LEDs to generate light, and simply tune the output wavelength by ordering customized QuantumRails.
Nanosys signed an agreement earlier this year with display manufacturer LG Innotek—a part of the giant LG electronics, chemicals, and telecommunications conglomerate—to supply millions of QuantumRails for cell phone displays. Hartlove says the company is also working with three makers of notebook computers to get QuantumRails into notebook displays, but that “we’re just a little further behind in the timeline in terms of getting these guys to production, since their product cycle only refreshes a couple of times a year.”
The second major business area where Hartlove felt Nanosys had a marketable technology—battery anode materials—is also some distance from production, since the battery industry moves even more slowly than the display industry. But in this area, Nanosys technology could ultimately have a far greater impact.
[This paragraph updated with corrected figures] On average, battery makers are able to increase the capacity of the rechargeable lithium-ion batteries that are ubiquitous in today’s mobile phones and laptops by about 6 or 7 percent per year, meaning capacity doubles every 12 years or so. One limitation on progress is the ability of the graphite typically used in battery anodes to absorb or “intercalate” lithium ions, which is what occurs when a lithium-ion battery is charging. (When the battery is discharging, lithium ions leave the anode and are taken up by the cathode.) Battery makers have spent a lot of time investigating anode materials that could soak up more lithium, including forms of carbon such as graphite sheets that have a larger surface area. The challenge with this approach is that as the anode material takes up lithium, it physically swells—by as much as 200 or 300 percent, depending on the amount of lithium absorbed.
“You can’t just have this swelling occur inside a sealed package and not have it create problems,” says Hartlove. “We have created a compound material that has a unique morphology that manages the lithium intercalation in a way that doesn’t cause cyclic damage. You don’t have the swelling effect that you get with conventional, non-architected structures.”
Hartlove wouldn’t tell me exactly how the Nanosys compound works. I speculated aloud that the material must twist inward on itself as it absorbs lithium ions—like a coil of chain-link fencing being wound more tightly. “Something like that,” Hartlove answered.
By replacing traditional anode materials with Nanosys’s compound, battery makers could achieve a 30 to 40 percent increase in capacity in a single generation, meaning capacities could potentially be doubled in just two or three years, Hartlove says. “Which puts lithium-ion batteries on a pace now to really meet the demands of the electrification of the infrastructure”—including, eventually, electric cars.
With a more efficient anode material, battery makers could use less of the material to achieve equivalent output, which would be a huge bonus in the electric vehicle business. “If you’ve got 2,000 pounds of batteries in a 3,000-pound car, not surprisingly, you are using a tremendous amount of your stored energy just to move the batteries around,” says Hartlove. “If you could make the batteries lighter weight, or hold more charge with the same weight, it’s a big win.”
But just as on the display side, Nanosys is starting smaller, focusing first on getting its new anode material qualified for use in the lithium ion cells used in mobile phones and notebook computers. It’s also working hard on producing its materials—both the QuantumRails phosphors and the high-capacity anode compound—on an industrial scale.
“We need to be able to produce these materials in the kinds of volumes and quantities required by these industries, and this is another key area where we’ve focused a lot since I joined the company,” Hartlove says. “When I got here we were making micrograms of the material we were using for batteries per batch. Now we are making multiple kilograms per batch, and ultimately we will scale up to kilotons. This is where our competency lies, and I think we are far ahead of anyone else trying to do similar things.”
Of course, being ahead at the half doesn’t always equate to winning, as Hartlove himself admits. “A lot of things can still happen” to keep Nanosys-enabled products from reaching the market as fast as the company would like, he says. “People might stop buying cell phones next year in as great a volume, or the customer that we designed into might be selling pink phones in a year when olive green is the hot color. I’ve been around long enough to know that those are the factors.”
But the 100-employee company (75 full-time) has a strong network of investors, Hartlove says. In fact, the company will soon close a growth-capital round that will help it expand to a new location, where scaling up manufacturing will be easier. (Nanosys’s neighborhood off Page Mill Road in Palo Alto used to be semi-industrial, but no more. “You can’t really be a big battery manufacturer when you have Facebook right behind you,” Hartlove says.)
Josh Wolfe, of Lux Capital, says the biggest challenge for Nanosys these days is not finding new markets for its technology, but “fielding the flood of incoming requests to do deals and intelligently parsing by application and geography.” If Hartlove’s pattern holds true, the company won’t have trouble picking the most practical paths—or carving together the required technologies.
“What I’ve seen with a lot of different technologies is that from the point when you see the university research happen to when you see products come to market is 10 to 15 years, it’s not overnight,” Hartlove sums up. “We are very much in that period of commercialization now, and we are seeing [nanotechnology] in more high-value applications like electronics and medicines. But it has taken a while for people to understand how to make materials at scale, at reasonable costs, with consistent performance—and which specs really needed to be hit.”