NanoMuscle Motors On To Second

Hoping to support the next generation of Rock’em Sock’em Robots, miniature motor producer NanoMuscle Inc. is in the midst of raising its second round of venture capital funding.

The Antioch, Calif.-based company originally launched the $15 million deal over a year ago, and has so far managed to net $9.5 million at a post-money valuation of $21.5 million. A $4.2 million first close was held in the first quarter of 2001, while a second close occurred just last month. The valuation base did not change between tranches, and NanoMuscle also plans to keep a dollar-per-dollar standard on the final sale.

“We looked at doing a Series C round with a big uplift in valuation, but we didn’t think the general fund-raising climate would have supported it,” explains Rod MacGregor, co-founder and chief executive of NanoMuscle. “So we decided to just keep the Series B terms open and we’ve had a lot of interest.”

Investors on the most recent closing include CrossBow Ventures, Keiretsu Angel Forum, Internet pioneer and UCLA professor Leonard Kleinrock and an undisclosed European auto manufacturer.

Both strategic and financial investors have expressed an interest in finishing out the deal, and MacGregor says that both options are still on the table.

As for one of the investors who has already participated, CrossBow partner Leandro Testa says that the NanoMuscle technology is a disruptive force because it is smaller, quieter and cheaper than other existing mini-motors. Part of the reason for this is because the NanoMuscle product line uses a limited number of mass produced parts, rather than trying to stuff dozens of custom parts into a gear box no larger than a match head. The company also molds its motors out of nickel and titanium, which result in lighter and quieter products than their legacy peers.

Testa is confident that NanoMuscle will be in the black by year-end, as it is already rolling products out of its South Korea manufacturing plant and into various electronic toys. While mini-motors are used in a wide range of consumer products, the issuer has chosen to first focus on the toy market because it has a relatively short product cycle.

“NanoMuscle develops its applications along with its clients,” Testa says. “But while a toy market cycle is only between six to 18 months, an automotive cycle can extend beyond four years. The technology here is proven, but the company will have to overcome those design cycle obstacles.”

If it does, electronics designers could soon be using NanoMuscle motors in everything from medical devices to computer peripherals to automobiles. It is important to note, however, that NanoMuscle is not the type of company most people think of when they consider the burgeoning nanotechnology sector. Rather than focusing on optics or other networking-related spaces, NanoMuscle is really just concerned with updating and improving existing miniaturized technologies.

“The average car has around 100 small electric motors in it, and we think that we can make them a little smaller, a little faster and a lot cheaper,” NanoMuscle’s MacGregor says.

Riding The Light

In more conventional nanotech funding news, NanoOpto Corp. recently tacked an additional $4 million onto its inaugural venture round.

The Somerset, N.J.-based company held a stealth $12 million first close on its Series A deal in early 2001 with a syndicate of investors that included Bessemer Venture Partners, Morgenthaler Ventures and New Enterprise Associates. Then, last fall the company announced that it had nabbed an additional $4 million from U.S. Trust’s Excelsior Venture Partners III fund.

At the time, NanoOpto CEO Barry Weinbaum said he expected to launch a Series B offering late this year with a close expected in early 2003. The publicity generated by his initial funding news, however, prompted so much VC interest that he decided to speed up his company’s funding schedule by last month accepting $4 million from DFJ Gotham, DFJ New England and Harris & Harris Group. No follow-on round is currently being planned.

“We were suddenly in discussion with a few dozen VCs, and the insiders said they were willing to come back pro rata,” Weinbaum says. “We basically just filled out the Series A term sheet, so we got what we wanted.”

Since its last funding feat, NanoOpto has begun producing wafers out of its own facility, rather than a Princeton University research lab. It has also sent out many more of its nano-optics products to customers, and hopes to soon partner with a company that has a core competency in packaging.

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