As mentioned in my very first post, nanotechnology is becoming big business. Mark Bunger, an analyst with Lux Research, kicked off the 2006 Industrial Physics Forum this morning by taking a look at the "Economics of Matter" -- namely, identifying the most successful business strategies for making money off of the continuing explosion of research advances in nanotechnology.

Bunger notes that the nanotechnology arena has shifted from being a primarily R&D enterprise dominated by scientists (the late Richard Smalley and Eric Drexler spring immediately to mind), to one that that is increasingly dominated by big business. Not only did President Bush specify nanotechnology as one of the top three areas for scientific research in his 2006 State of the Union address, so have the CEOs of powerful major corporations like GE, GM, and Procter and Gamble.

We're already seeing the first smattering of nano-products in the marketplace, but to keep their fingers on the pulse of innovation, corporate giants look not just to the cutting-edge research being done in academic circles, but also to exciting innovations under development at local start-ups. There's a distinct trend towards forming useful outside partnerships -- a practice Bunger dubs "open innovation." But how can your friendly neighborhood corporate giant -- or you, as a potential individual investor, for that matter -- determine which of the plethora of nanotech start-ups are likely to make the best potential business partners?

Lux Research has come to the rescue with a new report surveying 136 such startups and rating them according to how they scored (ranging from 1 to 25, for a total of 100 points) in four basic criteria: the scientific "pipeline", i.e., how active and robust an R&D program they have, evidenced by things like patents and publications; whether they have a product that is commercially viable; how well they've been able to navigate the minefield of legal and regulatory considerations; and how well they perform on standard measures of operations and finance. It's essentially the first quantitative measure developed to help identify the best potential companies for "open innovation" partnerships.

Take Nanomix as a example. Bunger reports that the company scored 21 points on the scientific pipeline, 20 on operations and finance, and 18 on how well they're dealing with legal and regulatory issues. Nanomix scored a more modest 12 on commercial viability, however, because they only have a few products on the market, or close to being commercialized. Total score: 71. That's still pretty respectable: only 26 of the 136 companies surveyed scored above 70.

While he stopped short of offering actual investment advice -- the Lux report is designed, after all, to identify potential partners only -- it was interesting to hear that Aspen Aerogels showed a 500% revenue growth from 2004 to 2006, and that Nanosphere just received an additional $57 million in funding that will enable it to go commercial with its products by next summer. And on the alternative energy front, Nanosolar just received some $100 million in funding to develop its flexible solar films, which are currently about 75% as efficient as traditional solar panels, at 10% of the cost. Those who follow solar technology know that the costs need to come down, and the scaling needs to go way up, before such technology is economically viable as an energy source. At least we know that nanotechnology can help (more on this topic in a later post).

I won't be investing my hard-earned cash any time soon. Technology start-ups are notoriously high-risk investments: huge potential returns if the start-up succeeds spectacularly, but far greater potential for devastating losses, especially for the smaller investor. It's just nice to see couple of Little Nanotech Companies That Could begin to realize some of their vast potential.