Nanotechnology is shaping up to be the most significant government-funded science initiative since the space race, surpassing even the Human Genome Project. In total, governments worldwide will provide about $4 billion of funding for nanotechnology projects this year. These projects may affect a host of industries, including chemicals, pharmaceuticals, energy, semiconductors and electronics. The field promises technology advances from the most mundane (scratch-proof kitchen and bathroom surfaces that shed dirt and never need cleaning) to the incredible (computers the size of a sugar cube that can hold the entire Library of Congress). The field is already grinding out useful advances, such as fabrics made from nano-whiskers that are impervious to stains but feel luxuriously soft.

Nanotechnology has had its greatest initial impact in the field of manufacturing. In 2001 Toyota introduced a bumper made of nano-composites that is 60 percent lighter than existing materials and twice as resistant to denting and scratching. Nano start-up Inframat developed nanoscale ceramic coatings that prevent barnacles and mollusks from adhering to ship hulls and submarine components. The Navy estimates the product has saved it $1 million in maintenance costs.

Over the long term, nanotechnology is expected to revolutionize medicine, creating new precision methods for cancer therapy that will not kill healthy cells. At MIT’s new $50 million Institute of Soldier Nanotechnologies (a research entity, sponsored by the Army and a handful of corporations such as Raytheon and DuPont, that is attempting to use nanotechnology to “enhance soldier survivability”), researchers are working to develop synthetic muscle. They also are developing nanoscale sensors that could be used to monitor vital signs, including heart rate, blood pressure, levels of hydration and chemical signs of stress.

Bust Soon, Boom Later
The buzz around nanotechnology is deafening. Stocks with “nano” in their names are surging. The Forbes/Wolfe Nanotech Report’s index has outperformed the Nasdaq by 226 percent since March 2002. According to Lux Research, in 1995 there were 700 mentions in the media of the word nanotechnology. This increased to nearly 7,500 in 2003. That is not growth; that is an explosion.

Precedents of similar technology booms, like the Internet craze, suggest that nanotechnology’s economic impact will be overestimated in the short run but woefully underestimated in the long run. Scientific and technological innovations—railroads, electricity, telephony or, more recently, biotechnology and the Internet—have often underpinned sweeping economic revolutions. These revolutions often take decades to run their course. Nanotech’s effect will be bigger than the Internet and more far-reaching. It will create vast new wealth and it will destroy a lot of old wealth. It will shake up just about every business on the planet.

Despite this promise, nanotech will not be immune to technology’s traditional boom and bust investment cycle when reality falls short of overinflated expectations. The vast majority of today’s venture capital deals in nanotechnology have been in nano-materials, where the path to profitability from revenue-generating products is clear. By dollar value, however, venture capital firms have been putting the most money to work in nanobiotechnology, where the time frame for return is significantly longer. Government support and patience on the part of the venture capitalists is required for these longer-term investments to come to fruition. 

Peter Hébert is cofounder and managing partner of the New York venture firm Lux Capital and a contributing editor to the Forbes/Wolfe Nanotech Report.