At Draper Fisher Jurvetson, we look for disruptive businesses run by entrepreneurs who want to change the world. To be successful as early stage VCs, we have to identify technology waves early and act upon those beliefs.
We were early investors in the Internet wave, and by 1995, the Internet comprised 80% of our investments. Today, approximately 30% of our investments are in the broad area of nanotech, MEMS and novel materials, and we have made 20 investments in this category.
Why Nanotech? At DFJ, we believe that nanotech is the next great technology wave, the next phase of Moore's Law, and the nexus of scientific innovation that revolutionizes most industries and indirectly affects the fabric of society. Historians will look back on the upcoming epoch with no less portent than the Industrial Revolution.
We like to ask the startups that we are investing in: "Why now? Why couldn't you have started this business ten years ago?" Our portfolio of nanotech startups have a common thread in their response to this question — recent developments in the capacity to understand and engineer nanoscale materials have enabled new products that could not have been developed at larger scale.
There are various unique properties of matter that are expressed at the nanoscale and are quite foreign to our "bulk statistical" senses (we do not see single photons or quanta of electric charge; we feel bulk phenomena, like friction, at the statistical or emergent macroscale). At the nanoscale, the bulk approximations of Newtonian physics are revealed for their inaccuracy, and give way to quantum physics. Nanotechnology is more than a linear improvement with scale; everything changes. Quantum entanglement, tunneling, ballistic transport, frictionless rotation of superfluids, and several other phenomena have been regarded as "spooky" by many of the smartest scientists, even Einstein, upon first exposure.
For a simple example of nanotech's discontinuous divergence from the "bulk" sciences, consider the simple aluminum Coke can. If you take the inert aluminum metal in that can and grind it down into a powder of 20-30nm particles, it will spontaneously explode in air. It becomes a rocket fuel catalyst. The energetic properties of matter change at that scale. The surface area to volume ratios become relevant, and even the inter-atomic distances in a metal lattice change from surface effects.
We are entering a period of exponential growth in the impact of the learning-doing cycle where the power of biology, IT and nanotech compounds the advances in each formerly discrete domain. Nanotech strips the isolating systems vernacular and exposes the core areas of overlap in the fundamental sciences.
Nanotech is the nexus of the sciences.
Herein lies much of the excitement about nanotechnology: in the richness of human communication about science. With the digitization of biology, technologists from myriad backgrounds can decode and engage the information systems of biology as never before. And this inspires new approaches to bottom-up manufacturing, self-assembly, and layered complex systems development. Nanotech extends the digitization of biology to the digitization of matter.
We look for entrepreneurs who have not been discovered by the mainstream and who are passionate about new ideas that are not universally regarded as good ideas. We find these entrepreneurs at the edge, at the frontiers of the unknown, and at the interstices between formal academic disciplines. Disruptive innovation, the driver of growth and renewal, occurs at the edge.
Given that much of the abstract potential of nanotech is a question of "when" not "if", the challenge for the venture capitalist is one of market timing. When should we be investing, and in which sub-sectors? We need to pull the sea of possibilities through an intellectual chromatograph to tease apart the various segments into a timeline of probable progression, an iterative exercise of exploratory learning and pattern recognition. As an umbrella term for a myriad of technologies spanning multiple industries, nanotech will eventually disrupt these industries over different time frames — but most are long-term opportunities.
Tools and bulk materials are revenue generating today. Molecular electronics, energy storage & conversion, and drug delivery & diagnostics are some of the areas of active nanotech R&D. Therapeutic nanomedicine and machine-phase manufacturing are future opportunities. The safest long-term prediction is that the most important nanotech developments will be the unforeseen opportunities, something that we could not predict today.
Of course, if one thinks far enough in the future, every industry will be eventually revolutionized by a fundamental capability for molecular manufacturing, from the inorganic to the biological. Analog manufacturing becomes digital, engendering a profound restructuring of the substrate of the physical world — such that matter becomes code.
With replicating molecular machines, physical production itself migrates to the rapid innovation cycle of information technology. And as some of these technologies couple tightly to our biology, it will draw into question the nature and extensibility of our humanity.
The aforementioned are some long-term trends. Today, from DFJ's broad sampling of the entrepreneurial pool, we are seeing more innovation than ever before. And we are investing in more new companies than ever before. We are in the process of opening offices in most of the major tech centers of the U.S. and internationally.
Bottom line, we conclude that it is a great time to invest in startups. As in evolution and the Cambrian explosion, many will become extinct. But some will change the world. So we pursue the strategy of a diversified portfolio, or in other words, we try to make a broad bet on mammals.