Nanotech: Your Winning Lottery Ticket

I have a weekly column in the Stanford Daily, and I wrote on nanotechnology this week. The article is reproduced below, and can be found at the url: http://daily.stanford.edu/tempo?page=content&id=18973&repository=0001_article

Thesis: If history is any guide, investors may become enamoured with the word "nanotechnology," in which case there are fortunes to be made.

The day has finally come: I’m fresh out of BS. The Facebook and campus dating just aren’t doing it for me this week. So, as a consolation, I’ve decided to tell you how to make millions of dollars. Sound good?

Look around. Palo Alto is slumbering like a lion that just made the kill of a lifetime. All is quiet as four of the 10 most expensive housing markets in the United States, all within a half-hour of Stanford, tranquilly doze amid hundreds of billions of dollars of new wealth.

Yeah — you and me — we missed that whole dot-com thing.

The only hope for us is to anticipate the next investing frenzy, which will correlate with some great leap forward. I remember when a partner at Lehman Brothers gave me some words of wisdom at a sell weekend: He said that you don’t get into banking to make money during a career, you do it for the years when the market comes unglued and investors go berserk.

So what’s the next big thing? It may well be nanotechnology, something very Stanfordesque. A seemingly abstruse term, nanotechnology simply means controlling matter on the sub-100 nanometer scale (one nanometer = 10 atoms). Nanotech thus implies the nexus of the sciences and engineering at the atomic scale, where the traditional distinctions between chemistry, biology and physics finally blur into the same quantum playbook.

This convergence will enable product design that is fundamentally different from anything we’ve attempted in the past. Since the dawn of man, we have used the materials made available by Mother Nature, and these materials come biggie-sized. In a top-down approach, we carve out raw materials from the earth, joining them, soldering them and mixing them to create the products we desire. Even microprocessors, one of the tiniest techs to date, are created top-down using ultraviolet light to burn circuit images into a slab of silicon.

Nanotech goes the opposite direction, bottom-up, building materials one atom at a time. This reversal in the construction process has the potential to revolutionize almost every product in existence and make the basic sources of well-being — food, water, medicine and energy — more accessible to the developing populations of the world.

“Hmm...” you say. “Sounds fishy.” Not sure you want to trust the shady columnist who constantly writes on completely useless topics? Let’s ask Michael Dell.

“Nanomaterials,” Michael Dell said, in response to what he would pursue if he had to build his fortune today. A myriad of the world’s business and political leaders — including John Mauldin, Steve Jurvetson, John Doerr, Hilary Clinton, Newt Gingrich and George W. Bush — have made similarly enthusiastic statements. I recently exchanged e-mails with a billionaire who informally wrote, “I think nanotechnology is really freakin’ cool. I only know the very basics, but I have a feeling that there are going to be some real fortunes made in that area.”

Indeed, nanotechnology is now the most well-funded government scientific initiative since the space race. And thanks to recent advances, nanotechnology is no longer just a government pipe dream. The torch is finally being passed to the private sector as commercialization increasingly becomes a reality.

Lux Research estimated that private sector spending outpaced government spending on nanotechnology for the first time in 2004. The Forbes/Wolf Nanotech Report stated in 2004 that over 1,500 companies worldwide have publicly announced their involvement in “nanotechnology,” and hundreds of start-ups have been launched in the United States alone.

OK, great, so why could this be a boom? Because it only takes a word to break the markets. If you’ve read Malcolm Gladwell’s Tipping Point, you know what I mean. People are largely ignorant and the markets are too vast to understand. As a result, a sexy and rousing word or idea sometimes comes along that catalyzes the aggregation of capital. The rest is just Psych 1. Money chases money and the markets come unglued. A few examples:

• Tulips

In 1593, Conrad Guestner imported the first tulip bulb into Holland from Constantinople. They became a status symbol among the rich but soon swept the nation in a tulip-trading craze. Tulip bulbs increased in value more than 20-fold in one month, and by their peak in the 1630s were worth about $76,000 each in today’s currency.

• South Sea

In exchange for financing its war debts, Britain granted exclusive trading rights in the South Seas to the South Sea Company in 1711. Anticipating a monopoly on trade in half of the New World and fueled by the excitement of the colonial period, investors bid up shares more than 10-fold in a few months. The stock crashed, leaving the British economy in shambles. Isaac Newton lost a large part of his fortune and remarked, “I can calculate the motions of heavenly bodies, but not the madness of people.”

• The Great Crash

The 1920s were known as the “Roaring Twenties” because industrialization had introduced many new technologies, such as the radio and automobile, that radically altered human quality of life. The economy boomed and the Dow increased six fold in under a decade, that is, until the Great Depression.

• Dot-Com

This late-1990s boom needs no introduction. It thrived on the potential of the Internet to drastically alter the economy and our way of life with connectivity and knowledge-sharing.

Though each of these resulted in a market crash, the latter three each marked a great leap forward for mankind — advances so exciting they inspired investors to the point of irrationality. Does the word “nanotechnology” command the same psychological power as tulips in Holland, trade in the New World, invention in the industrial period and dot-coms in the Information Age? Maybe.

Companies are already playing the name game. The Forbes/Wolfe Nanotech Report noted that “nano” name changes echo the “.com” name changes of the late-1990s. During the dot-com boom, the number of companies changing their names to something containing “.com” increased dramatically because this re-labeling paid off in stock appreciation. Similarly, the number of companies pulling a “nano” name switch has greatly increased in recent years and resulted in stock appreciations.

Similarly, the number of references to “nanotechnology” in both scientific journals and media references has increased exponentially, from a few hundred to tens of thousands, in a matter of years. Look no further than your shiny new iPod Nano to see the term already being used as a mass-marketing mechanism of the highest order.

Not to worry — just like the information revolution, your friendly neighborhood faculty are on top this thing. Small Times magazine ranks the Pacific states as the number-one region for nanotechnology, and places Stanford in the top five universities for nanotech research and commercialization. A search of engineering and sciences faculty profiles returns over 30 professors who list nanotechnology among their research endeavors, and Stanford Alumni Magazine recently ran a cover story on nanotech at Stanford.

So, there you have it. You’ve got a few years yet to decide for yourself and perhaps get involved. Stanford and Silicon Valley is the perfect place to do it. Cash in your ticket. The valley lion will reawaken soon enough.

Want me to return to my bread and butter — columns on completely useless and uninformative topics like the Facebook and sketchy grad students? E-mail me at brown_clayton@gsb.stanford.edu.