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Chapter 10. Nanobusiness > The Investment Landscape

The Investment Landscape

Although it is certainly possible to make money investing in large public companies with nanotechnology initiatives (and many large institutional investors and mutual funds will take this route), the most exciting way to invest in a rapidly developing economic sector is to invest in emerging companies. For that reason, despite our assertion that much of the action will be in the big firms, it's worth taking a closer look at what these emerging companies are likely to look like and what both companies and investors can learn from what has happened before. There has been a great hue and cry to “return to business fundamentals,” but there are also great benefits in the easier access to capital and the start-up-friendly business environment and support mechanisms developed over the last few years.

Nanotechnology businesses are different from information technology and Internet businesses in several key ways. Nanotechnology is built on defensible intellectual property that can be patented and that may be difficult to replicate. The time required to duplicate a product or process is often measured in years, not months, and a competitor must take a substantially different approach or license the existing patent. In the Internet world, nothing prevented Barnes and Noble from developing a site just as good as Amazon.com and competing directly. The patentability of Web-based innovations is dubious at best as can be seen in Amazon's failed attempt to protect its patent on “one-click ordering” (it was deemed to be too obvious an innovation). It is now commonly accepted that “first mover advantage,” the small headstart you get by being first to market with a new product, gives you a competitive edge for between 3 and 6 months, less time than it takes for many people to find out that you exist. After that period, someone will clone your product and probably incorporate lessons learned from watching the mistakes you made with the first version. If the new competitor is an established company, it will also use its customer base, media, brand, and advertising power to capture the market. This is less true of nanotechnology, provided the development is truly revolutionary. A new nanolithography process can be protected, and anyone who wants to use it must pay—even the biggest, most established companies. This can create a major barrier to entry and also lower the chances of companies getting crushed by the price pressure of near-perfect competition, as they have been in the telecommunications industry. It also opens an ethical conundrum. If companies are allowed to patent some basic natural processes such as genetic sequences, they can put a stranglehold on drug developments and other research. That has been an issue in the biotech world for some time.


  

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