Government Oversight, Venture Capital Investments and U'S' Nanotechnology Development

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Government Oversight, Venture Capital Investments
and U.S. Nanotechnology Development
Ruben Serrato
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Personal Background

• Venture Partner, Tokyo Electron Venture Capital

• Previous Background
• Venture Capital Manager, Canon USA
• Venture Capital Representative, NGEN Partners
• Investment Banking Lehman Brothers

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Tokyo Electron Limited (TEL)
TEL (Japan) 7.5 Billion Sales
Flat Panel Display Electronics
Semiconductor
Semiconductor
5.5B
2.0B
TEL Venture Capital (USA)
Goal Invest in companies that can benefit from
TELs 1. Money 2. Technology 3. Sales Marketing

• Investment 50mm
• Size 1-3 million
• Employees 4
• Region Global

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Nanotechnology As An Investment Class
Performance
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Path to Profitability Natural Challenges
1. Interdisciplinary
2. Cross Industry
3. International
4. Long Time Horizon
5. High Investment Hurdles
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Path to Profitability Natural
Competition
Credible Commitment
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Path to Profitability Regulatory Challenges
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1. Intellectual Property
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Importance of Patent Protection
A patent provides the right to exclude others
from practicing the invention
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IP Attracts Capital
Nanogen Stock Jumped By Over 50 In Response To A
New Patent
Lilys stock dropped double digits when patent
declared invalid
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Nanotech Complexity CNT Patent Landscape
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Nanotech Patent Litigation

• Destroys Investment Opportunity
• Expensive
• Time-consuming and distracting
• Uncertain outcome
• Impact on capital raising
• Revealing trade secrets and confidential business
  information

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Key Issues in Licensing Arrangement

• Both sides must negotiate key terms
• Exclusivity
• Consideration
• Sub-licensing
• Reporting
• Milestone Terms
• Infringement
• Representations and Warranties
• Term and Termination

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USPTO Nanoparticle Categories
New Class 977 - Across other class areas -
Additional designation
2 Tests - 1-100nm AND - Special property/
function due to size
Sources Miller, Serrato, Represas, Handbook of
Nanotechnology, 2004. Moutett, Nanotech and the
USPTO Nanotechnology Law Business, 2.3 2005
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Overview of Tech Transfer
Government, University or Corporate Laboratories
Nanotech Company
Royalties
Commercialization
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2./3. Human Health and the Environment
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Early Studies

• NASA First study data somewhat unclear
• 0.1 mg CNT on mice no effect
• gt0.5 mg CNT on mice 3/5 died within 90 days
• Dupont More clearly showed link between
  ultrafine airborne particles and mortality
• Hypothesis 1 Insoluble, non-degradable CNTs
  cause respiratory problems
• Hypothesis 2 Greater surface areas of the
  nanoparticles facilitate the release of
  transition metals or generation of free radicals
• Several other animal studies have also
  demonstrated that inhalation of certain
  nanoparticles does not have toxic effects

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The Case of the EPA

• Toxic Substance Control Act
• directs EPA to regulate chemical substances
  before they are released into the environment.
• Manufacturers are required to file a
  premanufacturing notice and obtain EPA approval
  if the chemical substance is new.
• A new chemical susbtance is one that is not
  listed on the TSCA Inventory.
• Because nanoparticles are simply smaller pieces
  of existing materials manufacturers of
  nanomaterials do not have to file PMNs

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The Problem of Scientific Expertise
Most of the people proposing this stuff are not
biologists and they think they can stick anything
in the body if its small enough. James Baker

• Difficult to acquire personnel with expertise in
  nanoparticles
• Unlike biotech, every center will encounter
  nanoparticles
• Few experts in the field
• Other rapid technological changes
• Stagnant budget

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4. Export Control Laws
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Export Controls

• Nanoparticles not directly discussed in export
  control laws
• nano raises red flags for export control
  administrators
• Complex government agency navigation (DoC/BIS,
  State, DoD)
• Military items
• International Traffic in Arms Regulation
• Australia Group (chemical/biological weapons)
• Chemical Weapons Convention
• Missile Technology Control Regime
• Dual Use items
• Export Administration Regulation
• Wassenaar Arrangement

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Commerce Controls List

• Wassenour Established to provide transparency
  and responsibility in transfers of dual use
  technologies. Members responsible for their own
  implementation.
• US EAR categories include the following
• Category 1 - Advanced Materials
• Category 2 - Materials Processing
• Category 3 - Electronics
• Category 4 - Computers
• Category 5 - Part 1 - Telecommunications
• Category 5 - Part 2 - "Information Security"
• Category 6 - Sensors and "Lasers"
• Category 7 - Navigation and Avionics
• Category 8 - Marine
• Category 9 - Aerospace and Propulsion

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Future Projections
Specialization will result in different attitudes
towards nanotechnology related regulatory,
environmental and health issues
Country
Climate / Incentive
China Primarily a supplier a cheap
manufacturing.
Reduce regulations to keep costs of production
low.
Europe Strong research and major consumer of
products
Increase regulations to protect consumers
Japan / Korea Most active larger companies
incorporating nanotech
Abide by prevailing sentiments regarding
regulation
Russia Strong research, startups/commercial
leader?
To be determined (TBD).
US Source of most startups and largest consumer
TBD. Foster an environment where startups can
succeed while protecting consumers