Nano’s Small Tech Keeps Growing

One makes memory chips and the other makes optical components. But Nantero Inc. and NanoOpto Inc. have at least two things in common – both fall under the broadly defined nanotechnology umbrella and, last week, both announced the close of a Series B round of funding that will ready them for large-scale production.

Led by Charles River Ventures, Nantero’s $10.5 million round included commitments from Draper Fisher Jurvetson (DFJ), Stata Venture Partners and Harris & Harris Group. Woburn, Mass.-based Nantero has designed a non-volatile random access memory chip using nanotechnology.

Meanwhile, NanoOpto, an optical components maker in Somerset, N.J., closed a $7 million round with investments from Bessemer Venture Partners, three DFJ funds, Morgenthaler Ventures, New England Ventures and U.S. Trust’s Excelsior Venture Partners.

Since its first round of funding in October 2001 – a $6 million deal that included DFJ, Stata, Harris & Harris and MIT Chairman and Teradyne founder Alex d’Arbeloff – Nantero has built an intellectual property of 30 patents.

The company has proved that its memory chips can be built using standard semiconductor manufacturing processes. Nantero has a handful of prototypes, including a four-inch wafer containing 10 billion nanotube junctions. The company’s non-volatile random access memory chips, or NRAM, combine high-speed and high-density with non-volatility, making it a memory storage technology that could replace all other forms of memory.

“Nantero has a proven theory and has proven that it works,” says Bill Tai, a general partner with Charles River Ventures and first-time investor in the company. “They’ve developed working devices and been through the wringer with a number of semiconductor companies. The company passed with flying colors.”

Now the company has signed at least one joint development agreement with a still-unnamed semiconductor manufacturer to integrate Nantero’s technology into existing devices. The Series B round will support that partnership and to expand the company’s engineering team, says Nantero’s president and CEO Greg Schmergel.

DFJ, which has made several nanotech investments, isn’t the only firm hoping to make millions from the tiny technology. Some of the biggest names in the VC world are placing bets on nano, including Advanced Technology Ventures, Apax Partners, Kleiner Perkins Caufield & Byers, Menlo Ventures and Sequoia Capital, to name a few.

Private equity investors pumped more than $400 million into 34 nanotech startups last year, up from 19 deals worth $190 million in 1991, according to Thomson Venture Economics (publisher of PE Week.)

Seven companies that work in the small technology of nano received $145 million during the second quarter, including Nanosys Inc., Infinera Inc. and Catalytic Solutions Inc.

With $27 million in venture capital now under its belt, three-year-old NanoOpto is moving out of the development phase and into the revenue generation phase, says CEO Barry Weinbaum. The company, which uses nano-fabrication processes to build devices for optical components and networks, is gearing up for large-scale production.

In July the company signed a strategic partnership with Japan’s Nplas, a consumer electronics device maker to make optical pick-up units for CD and DVD players. They are currently in pre-production. Additional products, for a range of consumer and telecom applications, are in development.

When the company launched, it said it would build devices for the telecommunications market. Those plans were thwarted by an industry-wide slump and a complicated intellectual property agreement orchestrated by founder Stephen Chou, a Princeton University engineer who had developed what became the company’s core technology.

NanoOpto had licensed its chip-printing technique from Nanonex, another company founded and controlled by Chou. Nanonex’s patents covered production techniques for telecommunications devices. Chou stepped down from NanoOpto’s board in December but remains a shareholder in the company, and CEO Weinbaum says NanoOpto has developed its own intellectual property.

The company, meanwhile, is pursuing a diversification strategy, Weinbaum says. Its core technology can be used to build components for sensors, displays and medical devices. It has already been selling samples to customers and expects to ramp up volume and sales with the close of this round. It will add another 15 people to its 40-person team. The company will likely need another round of funding before it becomes profitable.

Email Carolina Braunschweig