Mass High Tech September 15, 2003

 

You say you want a revolution? Emboldened VCs seem interested
By Jeff Miller

For the past few years, one of the biggest gripes among entrepreneurs has been that venture capitalists have been too conservative.

Rather than fund bold, revolutionary startups, VCs have instead preferred teams selling evolutionary products into established markets.

But don’t lose hope, entrepreneurs. It appears that revolutionary investments may once again be coming in vogue. The latest sign: a $10.5 million investment into Woburn-based Nantero Inc. led by Charles River Ventures.

When I first heard about Nantero a year and a half ago, I was dubious. Chief executive Greg Schmergel and his crew said they’d one day replace all current forms of RAM with a chip that stores data using carbon nanotubes.

“We use the nanotubes as nanoelectromechanical switches,” Schmergel said.

Using electrostatic forces, a nanotube can be bent so that the top touches the bottom, representing a one. Likewise, a bent nanotube can be straightened to represent a zero. Billions of nanotubes can fit into one four-inch wafer.

Because this process only moves a few carbon atoms in each tube, Schmergel claims Nantero can run their so-called NRAM (nano RAM) at 2 GHz. If the power is turned off, the nanotubes’ states don’t change, so no data is lost. Instant boot, no waiting.

What’s more, Schmergel claims his NRAM has a virtually unlimited lifetime, uses less power than conventional RAM and has an inherent resistance to radiation.

This year, Nantero claims to have built a working, 10-Gb array, and in such a way that the nanotubes can be integrated into any conventional complimentary metal oxide semiconductor (CMOS) fabrication facility. Nantero aims to license its NRAM intellectual property and process techniques to established RAM manufacturers.

That’s a disruptive technology. And Bruce Sachs, a general partner at CRV, believes we’ll see more investments in revolutionary companies like Nantero.

“I think in general that evolutionary (investing) worked great in the bubble, when there was hyper-demand for products and time to market was critical,” Sachs said.

“People aren’t interested in buying from startups,” Sachs continued. “If you go into a business and say, ‘Cisco won’t have this for six months,’ they’ll say to you, ‘OK, I’ll wait six months.”

Don’t give Sachs and CRV too much credit. Though it’s a huge investment risk to put money in a company that hopes to disrupt an established, multibillion-dollar market, CRV nevertheless had the benefit of seeing a working prototype.

The really big risk-takers here were the first-round investors who funded the development of that prototype: California-based Draper Fisher Jurvetson, Stata Venture Partners (the venture capital investment vehicle for Ray Stata, founder of Analog Devices) and New York-based Harris & Harris Group.

This syndicate invested $6 million in 2001, and also participated in the latest round, which closed much faster than Nantero had expected.

“Our goal was to raise money by the end of this year,” Schmergel said. “So we’re way ahead of schedule.”

There are other audacious startups like Nantero in New England. Vanu Inc. in Cambridge, for example, is forging ahead in software radio, implementing everything from commercial radio, to walkie-talkie bands, to GSM cellular base stations on a standard Sun server.

The company hasn’t raised any institutional VC, however. As the son of Amar Bose, founder of privately held acoustical giant Bose Corp., Vanu Bose neither wants VC, nor needs it.

There’s also LNL Technologies, a Cambridge company that aims to replace traditional integrated circuits with an optical IC.

The company has no venture capital backers but has some high-profile angel investors such as Larry Mohr, founder of Mohr Davidow Ventures, and Sandy Robertson, founder of defunct investment bank Robertson Stephens and now chairman of Francisco Partners.

LNL has raised $7 million to date, and is currently searching for another round that would include an institutional investor of some sort.

If the VC climate is indeed taking a shine to revolutionary, boil-the-ocean companies, I’d bet they’ll get it.