Nanotech funding to grow to $8.6 billion

Spending on research will more than double this year, and the private sector will account for a bigger proportion of the total.

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By Michael Kanellos

Corporations, governments, universities and others will spend an estimated $8.6 billion on nanotechnology research and development in 2004, and the private sector will account for a bigger proportion of the total.

Spending on nanotech research will more than double from the estimated level of 2003, according to an annual state of the industry report from Lux Research, a consulting company that studies the industry.

Currently, about 1,500 companies—1,200 of them start-ups along with corporate stalwarts like GE and Intel—have announced R&D plans.

"We expect 2004 to be the last year that governments outspend corporations on nanotechnology," said F. Mark Modzelewski, managing director of Lux Research. This year, governments will pour $4.6 billion into nanotechnology research while corporations will sink $3.8 million globally.

Nonetheless, investors are proceeding with caution. Venture investing in nano start-ups will likely decline to $200 million this year, down from the $325 million and $386 million invested in, respectively, 2003 and 2002. Nano poster child Nanosys, with its $3 million in annual revenue, recently had to . Most of the money is being spent by large outfits.

Twenty-two percent of the venture funding has just gone to five companies: Nanosys, , Molecular Imprints, Frontier Carbon and Catalytic Solutions. Acquisitions will be the fate of many start-ups, Modzelewski said.

is the science of building products out of components measuring less than 100 nanometers, usually designer molecules. (A nanometer is a billionth of a meter and the word is derived from the Greek root "nano," which means "dwarf.") At this level, many materials, such as gold and silicon, begin to exhibit novel properties.

Self-replication is another distinguishing feature of many nano projects. Executives with Palo Alto, Calif.-based , for example, believes it will be possible to build electronic devices by controlling chemical reactions, similar to the way clamshells are created though a reaction between inorganic minerals and highly specialized proteins secreted by a bivalve.

The United States remains the largest nano nation in terms of money, according to the report. U.S. governments will spend around $1.6 billion on grants and nano science, or 35 percent of the total worldwide coming from the public sector. All of Asia will spend $1.6 billion, while Europe will invest $1.3 billion.

U.S. funding is coming from the federal government but also states such as California and New York. Oregon will also begin to invest more heavily in nanotechnology facilities in 2005.

In the private sector, U.S. companies will account for $1.7 billion, or 46 percent of the $3.8 billion invested, while Asia will account for $1.4 billion, or 36 percent, and Europe will spend and $650 million, or 17 percent of the total. Sixty-four percent of the 88,546 nanotechnology patents registered with the U.S. Patent and Trademark Office since 1976 belong to U.S. entities.

The first successful use of nanotechnology in products has been in stain-resistant pants and car panels. Basic materials like these will continue to characterize the market, although companies developing these products get less venture funding than companies trying to make memory chips out of molecules.

"A lot of the materials stuff doesn't take as much money," Modzelewski said. "For most guys, it is just not that big a leap."

Still, the electronics industry could take off soon. Companies such as have already demonstrated how they can make memory chips out of molecules.

"This could switch at any time with a big deal," he said.

Several companies have also begun to show how molecularly enhanced could recharge batteries or even homes.

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