DR. STEPHEN EMPEDOCLES, Nanosys co-founder and director of business development, shines a light through five vials at his offices in Palo Alto last Thursday. The vials contain an identical material that ordinarily shows no color. Because the nanoparticles are of different sizes, however, the light causes each vial to shine a different color. The smallest particles are blue, the largest are red, and any color in the rainbow can be made with sizes in between. Photo: Associated Press

South Bay firm making it small

By MATTHEW FORDAHL, Associated Press

PALO ALTO - The science of manipulating the smallest building blocks of matter into useful technology has been hyped as the engine of the next industrial revolution, when molecular computers supplant silicon chips and cheap "nanobots" render billion-dollar factories obsolete.

Most experts agree that nanotechnology - usually defined as the creation and manipulation of materials no larger than a billionth of a meter, or 1/100,000 the diameter of a human hair - has the potential to transform everything from fabrics to health care to computers and space probes.

The question is, who will capitalize on it first, and when.

Nanosys Inc., a 35-employee Silicon Valley startup quickly gaining strength in the nascent industry, isn't banking on marvels of nanotechnology stitching themselves into reality any time soon.

It's building instead on near-term possibilities, hoping to make money and lay a foundation. The pragmatic approach may not be as dramatic as some sci-fi visions - but it's attracting considerable attention and investment.

That doesn't mean the company's view is narrow - Nanosys is working on applications as diverse as solar cells, sensors and nano-engineered fibers and electronics while developing and licensing core technologies it hopes will build business muscle.

"Today, our focus is on very simple things," said Stephen Empedocles, a co-founder and director of business development. "Things that we can do in the next couple years to get into the market so that people will have valuable nanotechnology at their fingertips."

This year, Nanosys led most nanotech startups in capturing venture capital investments, closing $39 million in financing for a total of $70 million in equity and non-equity funding since its founding two years ago.

Privately held Nanosys and its scientists regularly top lists of up-and-coming companies and researchers. It has struck deals with corporations like Japan's Matsushita Electric Works, and recently received investments from Eastman Kodak Co. and others.

It also has agreements with defense and intelligence communities, including the CIA-backed venture capital group In-Q-Tel and defense contractor Science Applications International Corp. No details of those deals have been released.

Last week, President Bush signed a bill to invest nearly $3.7 billion for work in nanotechnology. Corporate labs are investing heavily, and universities have set up more than 100 research institutes across the country. Nanosys is among more than 400 startups playing the field, according to data from the research firm Cientifica.

Nano-size particles have unique qualities that make them especially enticing. Nanotechnology can make materials faster, better and cheaper by building materials up atom by atom through chemical reactions in $10 beakers and flasks, rather than in the multi-billion-dollar factories of today's semiconductor industry.

Nanosys' goal is to become a provider of nanotechnology-based devices that its corporate partners can commercialize without needing to know the details - much like computer makers integrate an Intel Corp. microprocessor into their products.

Three businessmen founded Nanosys: Larry Bock, an entrepreneur who started 15 companies; Calvin Chow, who launched three; and Empedocles, who also started three. They rounded up nearly a dozen leading researchers who serve as exclusive scientific advisers and hold equity stakes in the company.

The company uses its investments to license intellectual property and develop its own. So far, it has about 150 patents, two-thirds licensed from nanotech centers around the world and the remainder developed internally.

"Nanosys has done a remarkable job of carving out intellectual property protection and really covering what appears to be all the bases for the area they want to be in," said Steve Crosby, president of Small Times Media, publisher of a magazine that follows the industry.

The intellectual property also helps Nanosys stand out, said John M.A. Roy, a technology strategist at Merrill Lynch. "Everyone talks about intellectual property, but to truly focus on it as a core element, there's not that many doing that," he said.

Empedocles is careful not to oversell what's feasible in the near future. Molecular computers may be distantly possible at some point, but Nanosys isn't counting on replacing Intel Corp. tomorrow.

"Our vision is different - it's basically looking for the low-hanging-fruit opportunities along this path," he said.

In Nanosys' lab, researchers work on nanomaterials that repel water so well that drops of liquid literally bounce from the surface. The company also is making strides in electronics that don't require the superheated vacuums and clean rooms of traditional semiconductor technology.

The photovoltaics it's developing - the technology converts sunlight into electricity - are different from today's expensive crystalline silicon solar cells. The hope is that, through nano-engineering, they might someday be molded into construction materials - or even painted onto surfaces.

Nanosys is not trying to reinvent the wheel with more exotic and unproven creations like the carbon nanotubes championed by others.

Carbon nanotubes are a promising technology, offering stronger-than-steel strength at a fraction of the weight, and also possess excellent electrical properties, but they're far from ready for prime time.

"The problem with carbon nanotubes is you can't manufacture them with any sort of control," Empedocles said. "Even the most leading-edge nanotube synthesis processes produce all types of nanotubes at once."

But even with a dream team of researchers, a strong patent portfolio and simple near-term applications, Nanosys - and nanotechnology in general - must now deliver something to match the high expectations of investors or risk popping the growing bubble of interest, said Stan Williams, Hewlett-Packard Co.'s director of quantum science research.

"They got the talent. They got the money," he said. "Now, it's an issue of execution."

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