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Nanotech venture capital to exceed $650M, exits remain thin

Posted: 07 Dec 2006 ?? ?Print Version ?Bookmark and Share


Venture capital investments in nanotech start-ups will reach $650 million this year, with an average deal of $11.5 million or 19 percent higher than 2005's $9.6 million, according to Lux Research's Exits for venture capitalists in nanotechnology remain elusive.

Venture capitalists continue pouring cash into nanotechnology start-up companies; but with the long time from investment-to-exit of six years, exits are thin on the ground. Nevertheless, some investors are unwisely looking to fewer exits to date for valuation multiples going forward, according to the research firm.

As of September, out of 171 venture-backed nanotech start-ups funded since 1995, 18 have reached a successful exit through an initial public offering (IPO) or acquisition as money continues to flow to the sector, according to Lux Research.

"Broadly accepted valuation multiples for companies employing nanotechnology simply don't exist today because acquisitions and IPOs for nanotech start-ups are just beginning to accelerate," said Lux Research Analyst Ted Sullivan. "It's tempting to look at today's few early valuation multiples as benchmarks. We think this will lead to bad decisionsthe gestation time for nanotech start-ups is double what venture capitalists expect in other technology areas, making the vast majority of start-ups premature for an exit today. We recommend that investors and entrepreneurs take a rational valuation approach for nanotech start-ups based on competitiveness in their core application areas."

As of September, the research firm found that 121 different institutional venture capitalists invested in nanotech start-ups, the majority of which had previously invested in the field. Then, 10 venture-backed nanotech start-ups included in their study have managed an IPO of shares, raising an aggregate $417.2 million at their debuts with a total implied valuation of $1.69 billion.

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