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Bo Varga Interview March 2002

The following is an interview with Bo Varga, Chair, Steering Committee, nanoSIG, and Client Champion, Executive Recruiter, Strategic Consultant for the The Strategic Synergy Group.

"The nanoSIG is a not-for-profit, however we network to the VC, corporate, entrepreneur, lab, and service provider community, in both the US and overseas.

That said, here are MY PERSONAL OPINIONS as a personal investor, NOT the official word of the nanoSIG. As a "big tent" organization, we do not take sides or have opinions, except to focus on quality people, IP, and deal flow."

Regarding investing in companies developing nanoscale technologies, here are the Questions:

1. Given the vast [and growing] plethora of nano-this and nano-that companies, how does one go about investing in a company with real potential?

The old fashioned way, do extensive due diligence and consulting with informed technical & marketing sources, focus on major markets addressed, on disruptive technology, strong competency by scientists or engineer in field, and recruiting a strong executive team. More generally, as most of the deal flow concerns early stage, in the lab deals, be prepared to accept the necessity to build a company - the nano funds we relate to all expect to build ventures, not simply invest in them.

2. About what percent of this year's venture capital will nanoscale technology companies receive?

Small, our expectation is around $500 million total for nanotechnology only. Large compared with investment in 2000 - up at least 5x.

3. Do you expect to see the same kind of frenzied investing in MNT as happened with the dotcom boom, or have we learned our lesson?

The dynamics of every new, disruptive technology are the same, canals, railways, electricity, oil, motor cars, etc. etc., the dotcom boom IS NOT an anomaly. As the spike will probably occur in 10 years, and as memories fade fast in the investment community - look how many times Argentina has defaulted in this century . . . I do not expect a major change in human nature or the nature of financial markets. So I expect we will see the same sort of frenzied investing and blowoff in nano, possibly 10 years in the future.

4. Out of every 10 start ups that you typically fund, how many succeed past the third year?

The question is irrelevant to an investor, the key is, how many companies pay off with a return which justifies the risk and how long does it take to get to a payoff.. Here are the "rough" numbers, of every 10 projects with seed funding, 1 gets first major, professional funding round, of every 2 which get professional funding round 1, 1 gets professional funding round 2. The story used to be that if you got professional round 2, then you had an 80% chance to a liquidity event. In the current climate I expect it is more like 20% to a liquidity event. Summing up, for every company which gets seed funding, odds are between 25 to 1 up to 100 to 1 against success. I realize VCs plan on 7 to 1 investment versus success ratio, so either you have a lot of VCs who will not be able to raise next round funds, or the corporations and angels are absorbing the down side.

5. Is there any one nanoscale technology of special interest to you or your firm?

The obvious plays are software, tools, bionano - in that order, however manufacturing is the strongest long term play - self assembling thin films, self-assembling electronic components using biomimetic approaches, etc.

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