Nanotechnology Commercialization: Barriers and Solutions

Nanotechnology has the potential to create revolutionary change across multiple, key areas of human endeavor from Energy to Homeland Security to Electronics. Over the next decade, the countries that demonstrate the highest level of innovation and capture the most value from nanotech progress will exert a significant level of influence on the global geopolitical landscape. For us to maintain our quality of life and our global leadership position, the U.S. must play, not just to participate in, but to win the international nanotechnology race. The U.S. currently leads the world in this race but a number of challenges threaten our leadership position:

• Slow growth of seed-stage capital for innovators. The pace of seed stage investment lags significantly behind the pace of new discovery, preventing innovators from obtaining the capital to transform ideas to applications.
• Increasing investments in nanotechnology by foreign competitors. Foreign governments are investing an increasing amount in nanotech and are directly supporting businesses competing with American innovators. American companies must bear R&D risks that are being subsidized for these competitors.

To win, legislators must:

• Level the playing field for American business investment in R&D. Co-sponsor the Research Competitiveness Act of 2007 (S. 41), which  creates a tax incentive for investors in innovative small businesses, encourages the development of research parks, and makes the R&D tax credit permanent. This legislation will help entrepreneurs attract seed-stage capital, while boosting our rate of nanotech innovation by guaranteeing the tax credit in future years.
• Maintain commitment to federal funding of nanotech research. Re-authorize “The 21st Century Nanotechnology Research and Development Act” and continue growth in funding.

Nanotechnology is Revolutionary

Nanotechnology, over the next ten years will affect most manufactured goods and be incorporated into 15% of global manufacturing output totaling $2.6 trillion in 2014 [1]. Nanotech has the most potential for near-term, prominent change in Energy, Electronics and Health Care. These changes have follow-on impacts, particularly on Homeland Security. [2]

In the energy sector, given rising global populations and power-hungry economies in Asia, the world will require, as a conservative estimate, approximately 900 MBOE (million barrels of oil per day), corresponding to 60 terawatts of energy daily – more than four times as much as we use today. As a comparison, 175,000 terawatts of solar energy hit the earth daily. Capturing 0.3% of this would solve the energy crisis. Nanotechnology is the only technology which promises an order of magnitude reduction in cost and increase in efficiency of solar cells. It is involved in the materials for making solar cells, the power lines that would carry the generated energy and the hydrogen fuel cells that would store the energy.

In the electronics sector, we are beginning to hit the limits of how small we can make our circuitry and thus how much power we can fit in a single processor or how much information we can store on a disk. The next leap in super-computing involves using nano-scale circuit components. These are wires and transistors that are no more than a few atoms thick, that are created using the nanolithography and printing technologies being developed today. Nanomaterials are also playing a key role in competing with LCD display technology. The next generation of high end display devices (e.g. televisions, computer monitors etc.) will use nano-enabled LEDs and provide a significant challenge to the current technology being used in applications such as HDTV.

In health care, nanotechnology has shown great promise in the treatment of cancer and in regenerating traumatized bone and tissue. In the case of the former, nanoparticles have been extremely successful in selectively imaging and targeting cancer cells and providing delivery vehicles for cancer killing drugs. In the latter, treated nanomaterials have been able to effect repair in damaged spinal columns and bones.

The implications of nanotechnology are significant, particularly for homeland security. Nanomaterials have the potential to save the military billions of dollars by providing wear resistant coatings and protective armors. More importantly however, breakthroughs in many of the areas impacted by nanotechnology will provide significant political and military leverage to the entity that develops them. The ability to cheaply produce renewable energy on a massive scale will put a political faction in the position to suddenly destabilize the petroleum economy or greatly increase industrial throughput for military applications. The next generation of super-computers will be able to crack high-security codes with greater ease, better process intelligence data and advance the rate of military research. Access to these computers by potential terrorists would set us back on our global war on terror. In addition, as the number of nanotech products in U.S. households increases, the country or countries that control the manufacturing and benefit from the commercialization of nanotech products will have significant influence over U.S. access to them and thus on the U.S. quality of life.

For these reasons, it is not sufficient for the U.S. to merely be a player in the nanotech arena. To maintain its global economic lead and to keep the U.S. homeland secure, we must win the nanotech race, particularly in the sectors of Energy, Electronics and Health Care and with regards to being a dominant force in the manufacturing of nano-enabled products and benefiting from their commercial success.

The U.S. Must Play to Win

To win the nanotechnology race, while it is important have the best research and intellectual property, it is not sufficient. This is evidenced by the micro-electronics industry where U.S. research and development fueled massive manufacturing booms in Asia, providing foreign nations with the prosperity and know-how to take the lead in innovation. To prevent this, the U.S. must lead in the manufacturing and commercialization of nanotech products. This will allow the U.S. economy to benefit from the revenue generated by the export and sale of nanotech products and also from the high-quality jobs created by manufacturing. In addition, it will allow the U.S. to maintain its lead on innovation and intellectual property development.

To achieve this position of leadership in innovation, commercialization and manufacturing, we recommend that legislators:

• Help small businesses by providing access to early-stage capital for innovation, attracting foreign investment and creating a level playing-field for investment in R&D.

The lack of early-stage venture capital growth is acting as a bottleneck for nanotech innovation and is limiting nanotechnology’s growth and impact. As we see from the data presented below, the amount of capital deployed to support the creation of new businesses has been in decline over the past three years. These companies drive the translation of nanoscience to nanotechnology and without them our ability to realize the commercial benefits (job creation and economic growth) of this new technology is likely to become constrained. In addition, the direct support of R&D in nanotechnology that foreign companies enjoy from their governments threatens the ability of American companies to compete on a level playing field.

Bill S. 41, “The Research Competitiveness Act of 2007” is part of Sen. Max Baucus’ (D-Mont.) larger competitiveness initiative and addresses both these issues. Senator Baucus introduced the bill on the first day of the 110th Congress as an updated version of a similar bill he introduced in the 109th Congress. The bill is currently being marked up by the Senate Finance Committee.

The key elements of this bill are:

• Improve the existing R&D Tax Credit
• Allow tax-exempt bond authority for state and local governments working to establish or improve research parks.
• Create an Investment Tax Credit to help start-up companies access capital.

The R&D Tax Credit is a proven measure that levels the playing field for business spending in R&D. Because fundamental R&D can be high risk, it constitutes a significant expenditure for high-tech businesses. Competitors, especially in Asia, are subsidized by their governments to carry out this research. The R&D Tax Credit helps to level the playing field by supporting businesses that invest in research and development. This credit’s success is proven by the fact that it has been renewed 11 times since its inception. S.41 modifies improves this credit in a few key ways:

• Makes it permanent rather than renewable.
• Bases it on research spending not gross receipts, thus helping companies with fluctuating sales or new, non-research ventures.
• Increases the percentage of contract research spending qualifying for the credit.
• Makes permanent the credit for basic research and allows for all basic research expenses to count under the regular research credit.

The development of research parks will attract global resources and help companies share the burdens of innovation. By clustering companies, research parks become magnets for foreign investment dollars and human capital. The success of this model has been proven in states like New York, where a nanotech research park in Albany attracted over $300 million in investment by Japanese Tokyo Electron Ltd. Companies co-located at the parks can exchange ideas and collaborate. Small businesses can also share the capital costs of expensive high-tech research equipment.

The Investment Tax Credit will motivate the creation of seed-stage capital. The Investment Tax Credit provides a 5% tax credit each year for 5 years. The credit goes to investors that invest in focused funds (“a qualified equity investment” in a “qualified research entity”) provided that these focused funds have as their central mission and activity, providing investment capital for small businesses that are involved in commercializing research. It thus creates an incentive for the formation of funds focused on high-tech small-business investment and thus stimulates the availability of seed-stage capital for scientists and entrepreneurs looking to commercialize cutting-edge research. The act provides for $4 billion over 5 years for this mission.

Over time, Bills S. 41 will result in an overall increase in tax revenues. By increasing the number of new start-up high technology companies and increasing the likelihood of success for existing companies, America will have more businesses that are profitable and successful. The tax revenues from these successful businesses will more than compensate for the investment made by the tax credit.

• Maintain overall levels of federal funding for nanotech research. Re-authorize the “21st Century Nanotechnology Research and Development Act” at existing levels of funding.

The nanotech R&D act is the primary reason for America’s leadership in nanotechnology. It’s effectiveness at promoting fundamental research in the field o nanotech has been proven by the U.S. dominance in patents in papers. This fundamental research has in turn given rise to the companies that constitute the American nanotechnology industry.

However, this act also spurred foreign competitors to join the race. Some of these competitors, notably Korea, Japan and China, are fast closing on America’s lead. To maintain American Competitiveness in nanotech and not fall behind, we must re-authorize this act and maintain our current levels of federal investment in this technology.

Footnotes

[1] Source: October 2004 Lux Research report “Sizing Nanotechnology’s Value Chain.”

[2] Source: NanoBusiness Alliance