Economic downturn and some uncertainty in economies around the world with additional cuts in government funding set a very bleak picture for the investment landscape for start-ups in any technology driven sector like nanotechnology. What trends and specific features of nanotech industry are still attractive to investors and what could we expect to happen in the near future?
Most EU countries still treat nanotechnology as a priority sector for application of tax breaks. Quantitative easing in several EU countries and the US maintains some level of funding availability. Fears of high inflation are actually triggering an even stronger interest in high-tech investments.
A report on venture capital trends identifies that ‘the economic downturn has adversely affected new fund raising in the US and Europe, though not eliminated it all together. Other trends affecting all venture capital investment include a tightening of exit markets – particularly IPOs. There is some evidence that the value of individual early stage funding rounds is increasing, which may raise the threshold for receiving venture capital’.
With the increasing threshold for VC funding the sector experiences an equity gap, which means that for some start-ups that cannot justify a large VC investment the funding may not be available. As the report suggests, the seed stage investment rose from by almost 2 million USD between 2008 and 2009.
Lux Research identified 792 million USD of VC investment nanotechnology in 2009, which was only a fraction (42%) of that invested in 2008. The sectors that dominated the 2009 round of investment were:
- Healthcare and Life sciences (51%)
- Energy and environment (23%)
- Electronics and IT (17%).
The funding was spread between 91 deals and amounted to an average of 8.6 million USD.
The most problematic for the VCs in general has been the difficulty of finding exit routes for their investments. Perceived lack of exit market (initial public offering or acquisition) put some VCs off engaging in projects. Some projects are not big enough for an IPO while some are too broad in their focus for acquisition.
In an attempt to get some feedback in nanotechnology sector a German investor was quoted saying: “It makes no sense to talk about nanotechnology as a separate investment class – we look at companies, industries and markets [not technologies]”.
Follow these links to download the report.