While working on our report on Using Emerging Technologies to Address Global Risks, one of my favourite SciFi authors, Neal Stephenson, popped up with an essay on Innovation Starvation.

It echoes Tyler Cowen‘s arguments that all the easy big stuff has been done,  and that all we have left to look forward to are incremental improvements rather than world changing technologies.

Stephenson, being a science fiction writer, looks at space as an example where a culture of risk avoidance, cost cutting and politics combine to stifle innovation. As he points out, even China’s space program is merely copying what the USA and Soviet Union were doing 50 years ago rather than doing anything innovative.

It is undoubtedly a problem that plagues the world.  Whether it is large ambitious space programs, or providing a government stimulus for technology companies, the emphasis is always on avoiding failure, which involves avoiding anything innovative.  The million lost by a failed company always generates more headlines for governments than the hundred million successfully leveraged as we can see with the furore over Solyndra – although governments have a poor track record of picking winners.

So how can we kick start global innovation? As I argue in Using Emerging Technologies to Address Global Risks we need to focus on the big issues that we can all agree on. Water might be a good start.

Over the past five years I have come across numerous innovative approaches to water scarcity, from desalination plants that double as greenhouses to nanostructured membranes that dramatically cut the energy needed for desalination, but I cant remember a single one of them attracting significant investment. That wasn’t because the technology is poor, it is simply because of the costs involved in getting it to market put it outside the risk which any early stage investor would be comfortable with. Raising $50 million for social networking is relatively simple, but for water remediation it is a stretch too far. Development times in excess of 3 years and uncertainty about who will pay for the technology combine to make it almost unfundable.

For a small fraction of the current cost of dealing with drought – something that will only increase in the future – we could develop a suite of technologies to mitigate the shortage of potable water. But we won’t.

I’m not convinced by the innovation starvation argument, I think we have plenty of innovation but we lack the political will to deploy them.  The challenge isn’t so much stimulating innovation as effectively making the case for governments and international institutions to use it.

(Foreword to Using Emerging Technologies to Address Global Risks , October 2011)

This is a question that often comes up in our dealings with global policy makers who spend huge sums on scientific research while simultaneously being fearful of its consequences. Many believe that it is somehow important for the economy in an undefined and non-quantifiable manner, or that it is some kind of logical next step along the path that starts with scientific curiosity. Perhaps a better way of viewing technology would be as a mechanism through which science is applied to meet the needs of society, and that holds true whether the needs of society are getting rich quick, curing cancer, or both.

But there is another less beneficial view of technology. The idea that technology is responsible for environmental degradation, especially when coupled with population growth, is a powerful one that has held true since the industrial revolution. It is human nature to fondly imagine an agrarian pre-industrial utopia, while forgetting the regular plagues and famines that resulted in an average life expectancy of 35 years in pre-industrial Britain.  The idea that technology is a bad thing is a situation that has existed for much of the 20th century and persists into the 21st, partly as a result of confusion between technology itself and those individuals and corporations who control and exploit it.

But it is time for a change. In fact a change is inevitable. Human history is littered with technological advances that have changed everything, and much faster than anyone could have imagined.  The agricultural, industrial and information revolutions have resulted in massive changes to the economy, society and the way in which we interact with the environment.

Since the second world war, science and technology have moved faster and had a more profound impact on human society than at any other point in human history. We have moved from black and white television exploding onto the market in the early 1950s to more than 800 million people using Facebook within 60 years. While television took 3 decades to diffuse around the world, Facebook did it in 3 years. Technology has driven economic growth around the world and led to vast improvements in the quality of life for much of the global population, but it has come at a price: the rise of consumerism has resulted in environmental degradation on an unprecedented scale.

It is time to reappraise our relationship with technology and take control of its direction. With an increasing global population becoming ever more affluent, the pressure on resources coupled with climate change will inevitably lead to more wars, water shortages, famines and mass migration. Or will it?

If profound economic, societal and environmental changes are inevitable then why do we still address them in the same way we have for millennia, by being helplessly reactive? In the 21st century, science and technology has advanced to a stage where we can start taking control of the fruits of scientific progress rather than being powerless in the face of their development and exploitation.

We already have many of the technologies we need to address major global problems such as water shortages and disease, and there is no reason why inevitable environmental disasters such as oil spills still have to be tackled using antiquated technology when a hundred million dollars could give us the technologies to reduce the impact of oil spills to almost zero. Many other emerging technologies are being developed that would allow the world to support 10 billion people without compromising the tremendous growth in quality of life that has taken place over the last century.

At Cientifica we establish  how we can harness technologies for the global good. While we still lack the political will and necessary international institutions, we now have the knowledge and the tools to make the transition from being mere consumers of, and in some respect slaves to technology, to making use of  the new scientific revolution to mitigate and minimise global risks.

While it would be foolish to claim that the wise use of science and technology will usher in a utopian age, there is little doubt that we now have the tools to create a sustainable and responsible world where human suffering and environmental degradation can be alleviated while maintaining economic growth.

"En Route To The Nanotech Debate"

It’s always odd how nanotechnology gets blamed for a lot of the world’s ills

A common accusation is that nanotech will lead to a loss of privacy, although this is surely more due to the proliferation of databases and processing power to enable facial or car number plate recognition. It is ironic that some of the most vocal protesters use Facebook & Twitter.

Chemistry World has been reporting on the protests at French nanotechnology debates, which seem to have degenerated into attempts to disrupt any public engagement. Perhaps they are mindful of the UK engagement exercises, which usually ended up with the general public being generally in favour of nanotechnology, or perhaps just carrying on an old French tradition of angry mobs of peasants/farmers/students smashing things up. But it raises wider questions about the understanding of the consequences of technology, both good and bad.

GMO’s are a case in point, and a perfect example of how, despite having the technology to address some of the worlds major problems with food production and nutrition, the fear of someone making any money out of just one aspect of the technology has condemned millions to a rather more dismal existence then they may have had. While opposition to GMOs has been softening of late, many other emerging technologies from geoengineering to synthetic biology are facing similar hype driven backlashes.

The nightmare scenario is that we have the ability to address, solve or mitigate a major problem, but that a decision has already been made not to use that technology. Synthetic biology may, for instance, be able to provide some shortcuts to the production of sustainable fuels and vaccines for H1N1 and other flu variants, but what if it winds up like GMOs and is unable to be used?

Can anything be done about it? Perhaps. Information and education are the key. Pitchfork wielding mobs descending on universities, or its modern French equivalent doesn’t get us very far, and as usual it comes down to information , as Mark Twain noted in 1869

Travel is fatal to prejudice, bigotry, and narrow-mindedness, and many of our people need it sorely on these accounts. Broad, wholesome, charitable views of men and things cannot be acquired by vegetating in one little corner of the earth all one’s lifetime.

The same is true for most single issue groups, whether anti capitalist, environmental or even pro business!

All technologies have pros and cons, but the trick is to manage them in such a way that you encourage the positive aspects while keeping tight rein over any potential downside. There is nothing new here, we have been doing it with drugs for decades.

The chart below shows the recent decline in valuations of late stage venture backed companies as reported by the Wall Street Journal.

It’s a decline that hurts everybody, with cash starved companies taking whatever they can get, which is often a far cry from what was promised and according to the WSJ, existing investors are increasingly resorting to propping up valuations, something that is clearly only sustainable in the short term.

In the first quarter, 57% of all venture rounds in the U.S. were done by insiders only, according to VentureSource. The prevalence of such financings has raised concerns that venture firms are propping up valuations to avoid write downs that would affect fund performance. A new investor is more likely to question whether a company is over-valued.

No doubt everyone is hoping that a recovery will take place ans valuations will soar once again, but if we are in for a longer slump it;s a dangerous game to play and we will see more VCs becoming over exposed and undercapitalised.

In my predictions over the last year I mentioned that Clean Tech would have a rocky time in 2009 for four reasons

1. Renewable energy interest tends to lag oil prices by 6-12 months and with oil almost back to 2006 levels a lot of transient interest will evaporate
2. Lot’s of clean tech companies based their business models on sustained high oil and commodity prices – so a recalculation will reveal that they don’t stand a cats chance in hell of being profitable
3. The stampede by Venture Capital into every clean tech deal going for the last two years has inflated valuations to levels that will never return any cash to investors – and that was before anyone took into account  recessions & pestilence
4. As a result, VCs would find themselves locked into very expensive deals and have trouble shaking down their limited partners for the funds necessary to keep in the hunt

Don’t say you weren’t warned. It must be getting serious when even VCs are getting contrite – according to the New York Times:

David J. Prend, managing general partner at RockPort Capital in Boston and Menlo Park, Calif., said that the promise of big returns prompted too much “me-too investing,” when venture capitalists put money into start-ups that do the same work as other companies.

“There was probably some stuff that shouldn’t have been funded,” he said. “It’s kind of good for some of that to get washed out.” For clean tech to be a viable industry, investment should not return to recent highs, he said.

Mr. Vassallo blamed the credit crunch for the decline in clean-tech investing. More than half of clean-tech investments have been in alternative energy like solar and biofuels, which typically require building big factories. These projects depend on capital like project finance loans as well as tax equity investments, whereby corporations back green energy projects and reap the tax credits. These have been “frozen or completely disintegrated,” he said.

This is weird & spooky. Didn’t the same folks say the same thing about dot com investing, about nanotech and now clean tech? Are these the people we see rooted to spot, continually banging their heads against a wall crying “I know there was an exit here somewhere!”

Mark G. Heesen, president of the National Venture Capital Association, prefers to call the clean-tech investment cycle “an education curve.”
Still, he said, “if the industry has gotten one criticism year after year, it’s that we have a lemming mentality, and solar probably represents that in the clean-tech space.”

Stephen Fleming at Academic VC has an interesting article about the diverging interests of angel investors & VCs. The basic premise is that the high returns required by venture funds drive them to take decisions which are neither in the interest of the founders nor the early stage (Angel) investors.

I’ve seen this happen in a number of companies, and it’s not pretty. As a result, the founders often end up with next to nothing, even if there is an exit.

British scientists are hopping mad about comments from Bank of England Governor, Mervyn King, who recently argued against increased science funding, presumably on the grounds that all the money had already been spent on health and safety agencies, totally ineffective government agencies and bailing out Scottish Banks.  I would expect the Governor of the Bank of England to understand a little bit of basic economics and that economic growth has always come from technology (think of the Industrial Revolution which created the British Empire) rather than bulldozing money into a pit and setting fire to it. I think I’m hopping mad too.

With lunatics like this running the asylum its hardly surprising the UK economy is in its present state.

Sir Roy Anderson, rector of Imperial College is being firmly diplomatic rather than hopping mad, and calling for a £1bn venture capital fund to support small high technology companies, an ideas as insane as Mervyn Kings. For all the whinging about the UK venture capital industry, it’s not too bad. It’s not Silicon Valley but it’s much better than most of the rest of the world. However, like their UK counterparts it doesn’t work too well, and shovelling yet more public money into another lame duck industry won’t do any good either.

It’s hard to believe that the finest minds in the country can’t come up with a better idea for an economic stimulus package than chucking loads of public money at things that don’t work. Putting their underpants on their heads and shouting at the traffic would   have as much effect and be a lot better value for taxpayers.

Despite its recent woes, there is enough liquidity in the VC industry to continue doing what it does, but what it doesn’t do is invest in early stage technology companies. In fact not many people do and that’s where the money really needs to go, to support early stage companies and get them to the stage where they can attract further capital from customers, banks or even VCs.

As I wrote in February, Let a Million Flowers Bloom!

Given that the returns on most asset classes are now negative, entrepreneurs are one of the few places where some wisely invested cash will give a decent return. Imagine what would have happened if governments had refused to bail out the banks and put the cash into technology, entrepreneurs and small businesses instead? We’d still be a few hundred billion in the hole, but at least there would be some chance of getting some of it back and stimulating the overdue reinvention of the economy.

It’s nice to see the UK Department of Innovation, Universities & Skills (DIUS) lobbying for a billion pounds to be spent on scientific research, but it’s worrying that, as with most of these ‘stimulus’ packages, little time has been spent figuring out what really needs to be done and the majority of the package is focussed on quick wins and headline grabbing – or as the BBC puts it “funding bodies have been asked for a “shopping list” of ideas that would strengthen British science and boost the economy quickly.”

Now boosting the economy quickly through spending an extra billion pounds on science simply isn’t going to happen – at least not in time for the next election in mid 2010, and as I mentioned a couple of years ago:

The timetables of science (which operates in a framework of decades or longer) are completely out of sync with the timetables of public policy (which operates in a framework of months and years)

Despite this, according to the BBC “many research leaders are determined to ensure highly trained scientists and engineers don’t get lost during the downturn.” Get lost? Where are they going to go, investment banks, hedge funds, venture capital or simply sublime? Who in their right mind would give up a nice secure government funded science post at the moment? Losing scientists to other industries is the least of the problems.

Showing how out of touch policy is with the real world, the BBC also reports that DIUS “is also considering proposals to create two funds to encourage venture capitalists to invest in small high-tech companies by matching their investment with public funding.” I hope that they give up this idea pretty quickly, or at least only open it to VCs who have shown a decent return over the last ten years. Compounding one problem with another is hardly a solution.

Yes, a billion pounds invested in UK science would make a difference, but its not the kind of quick fix that politicians are looking for, and unless it is a well thought out strategy, and one that connects to the overall economic stimulus plan then it will be more yet money swirling down the drain.

Thomas Friedman in this weekends New York Times echoes my recent thoughts on how to get us out of the credit crunch recession:

As we invest taxpayer money, let’s do it with an eye to starting a new generation of biotech, info-tech, nanotech and clean-tech companies, with real innovators, real 21st-century jobs and potentially real profits for taxpayers. Our motto should be, “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.”

I think the same is true in Europe. We do have world class science on which to base innovation, and a whole host of dinosaurs that will become extinct whether we as taxpayers fund them or not, but my US colleagues do have the impression that most European entrepreneurs still try to work a 35 hour week and take 8 weeks vacation per year.

Isn’t quite that bad, but in terms of entrepreneurial culture the US ‘can do’ attitude goes a long way to getting technologies off the ground despite the problems I highlighted. Some of the more interesting deals I have been involved with recently are ones where the entrepreneurs made sure that I “got” it though sheer perseverance. Once we are past that stage, getting the deal done can be even more challenging, especially when dealing with companies, lawyers and investors in time zones ranging from Bangkok to San Francisco, but good entrepreneurs (and investors) shouldn’t let a little thing like sleep get in the way.

The current situation may be rather trickier than the dot com years, but economic turmoil often throws up a host of new opportunities for anyone still watching out for them. I’m seeing some fantastic deals, with some great technologies at sensible prices, and doing more of that and less of the bailing out of lame duck industries is where our future economy will lie, and my bank manager (Barclays) keeps exhorting me to tell everyone that they are still lending money and doing deals.

The UK Venture Capital industry has become the latest to thrust its hand out for a £1 billion bail out claiming that it is “potentially a lost generation of companies.”

Why? Well, as we predicted,  the reason is that VCs cannot get exits and cannot raise fresh capital for their current portfolio companies, something that may have been buried in the small print of the term sheet. As a result many companies cannot raise the second or third rounds of financing that they were expecting and may go to the wall. The industry as a whole is now demanding that the UK government fork over a wad of cash so that they can continue to take their management fees continue funding innovation.

The implicit threat is that without that investment, a whole raft of companies developing clones of Facebook and Twitter may be lost forever. Instead of bemoaning this we should be shouting hooray!  How many billions of dollars have been ploughed into “me too” investments by people who can’t see beyond the narrow confines of Web 2.0? ? It’s hardly innovative now, is it?

As I discussed last month, the VC industry is becoming a bit of a lame luck. The world has changed, quite fundamentally, and ploughing on with a business model that clearly does not work, either for investors or entreprenueurs doesn’t seem a very sensible course.  Rather than handing out public money to fund unsustainable businesses, we should be waking up to the new economy and making sure that any resources are ploughed into taking advantage of the future, not applying sticking plasters to a half dead industry.

Given the global gloom emanating from all sources, it was at least nice to see that our little bit of the world, nanotechnologies, got a mention in Davos and Andrew Maynard who is also on the nanotechnologies council with me has the background details here.

However, I’m still a bit worried that most discussions about nanotechnology tend to focus on what might be possible, or enabled, which is always much more interesting to waffle on about than the nitty gritty business of how to actually do it. Let’s have a quick recap of the situation.

• The Venture Capital industry is in disarray – returns are close to zero, limited partners are bailing out and Web 2.0 will always be more interesting than hard stuff like nanotech
• Most University tech transfer offices think they are Stanford University or MIT circa 1998 and haven’t cottoned on to the fact that academic research is not some kind of sausage machine where brains go in at one end and money comes out at the other simply by pressing the right buttons
• Many applications of nanotechnologies can take ten years to get to market and could require anything from ten million to a billion dollars to get them there

So, given the current climate, no matter how good your idea/technology/business plan is, the chances are you are going to get screwed by investors, banks and your own university before you can even contemplate running it as a business. Of course for that 1 in 100,00 there is always the chance that a Dow/BASF/Mitsubishi might step in, but you could also buy some lottery tickets and perhaps save the hassle. That’s not much of an incentive for anyone is it?

At the same time, we have the world crying out for solutions that only materials (and let’s face it, nanotech is all about the control of materials) can provide. It’s been that way since the invention of fire, and every technological leap forward has been associated with the material that made the economic boom possible, bronze, iron, coal/steel and silicon.

It was good to see my concerns being slightly addressed at Davos with the statement that “Most funding goes to developing materials, but developing manufacturing capability with a high degree of reproducibility is a huge challenge that needs proper funding” but the problem goes much deeper than that. Despite the the current recession there us no shortage of academic innovation, or entrepreneurial creativity, and despite what the doomsayers in the media will have us believe, we’re not all living in caves eating mud pies and consumers and businesses still have cash to spend or invest.

Given that the returns on most asset classes are now negative, entrepreneurs are one of the few places where some wisely invested cash will give a decent return. Imagine what would have happened if governments had refused to bail out the banks and put the cash into technology, entrepreneurs and small businesses instead? We’d still be a few hundred billion in the hole, but at least there would be some chance of getting some of it back and stimulating the overdue reinvention of the economy.

The next few years will be tough, but as a species we’ve had worse, and our innate creativity coupled with technology will see us through. I’m reminded of one of my favourite misquotations from the eminent philosopher and Yangtze river swimming champion Mao Zedong:

“Letting a hundred flowers blossom and a hundred schools of thought contend is the policy for promoting progress in the arts and the sciences and a flourishing socialist culture in our land.”

Perhaps we don’t need to worry about the socialism bit too much, but a trillion dollars should allow a few million flowers to bloom. Instead of pouring  cash into fixing yesterdays mistakes, we should be investing for tomorrow.

An article in today’s Wall Street Journal illustrates the effect the credit crunch recession is having on Venture Capital portfolios. John Steuart, a Claremont Creek managing director is quoted as gleefully saying “The portfolio is competing against itself and it’s survival of the fittest. It’s brutal”

Here’s the problem for all of those game changing nanotech companies still struggling to find a market…

Many venture-capital firms, which put money into start-ups with the aim of profiting when those firms go public or are sold, are going  through a similar Darwinian exercise of sorting through their potential winners and losers. While the venture business enjoyed something of a revival in the past few years, the financial crisis has slowed the spigots of cash going into the sector. It also has crimped returns by damping the market for initial public offerings of stock and for mergers. Meanwhile, many venture-backed start-ups are getting hurt as demand for their products shrinks.

Given that the world is now realising that much of the financial world has been run by buffoons who didn’t have a clue what was going on or they were investing in, I think that there might be some decent value to be had here. The same people who invested in technologies without understanding a thing about them will now be selling them off, so the opening offer of any skilled negotiator should be  “See these five magic nanotech beans….”

I enjoyed Rick Weiss’”Good Riddance” piece directed at the outgoing US administration, and it probably echoes  the views of many US based researchers.

Good riddance to the lies, the deception, the White House-edited pseudoscience reports. Good riddance to the stacked science advisory committees, the faux peer-review of proposed regulations, the junkyard claims of “junk science.”

Good riddance to the scientist manqué at the top of the Environmental Protection Agency who big-footed actual evidence for political convenience. Good riddance to the leadership at the Office of Science and Technology Policy that supported President Bush’s skepticism about the need to address climate change aggressively.

Good riddance to the vice-president who thought the telecom revolution was about better bugging of innocent citizens’ phone calls. Good riddance to the president who cared more about human embryos than he did about children living in the lower Ninth Ward.

I have been hearing lots of positive things about Obama’s science team (mainly from US based colleagues who may or may not have an interest in positions/funding so the traditional academic infighting may resume once the honeymoon is over), so let’s hope that they can deliver on the promises and set an example to the rest of the world.

However having good scientists is not the only criteria for good science. The 2001 outbreak of foot and mouth disease cost the economy some £20 billion as a result of what is now seen as a disastrously wrong decision by the Chief Scientist Sir David King to slaughter animals rather than vaccinate them (as happened in most other countries), perhaps illustrating the problems of putting a chemist in charge of epidemiology. The result? Half of the countryside out of bounds and pyres of dead carcasses being burned for weeks on end.

More nanomaterials woes, this time from Unidym who you may recall bought Carbon Nanotechnology Inc’s  and CSixty’s IP for a song a few years ago. We’ve herard of big job cuts and this comes from the annual report of their parent, Arrowhead Research Corporation. It can be read along the lines of desperate cash starved company mortgages its future to Tokyo Electron in exchange for a couple of million bucks.

Unidym raised a total of $14 million of equity financing in fiscal 2008. In fiscal 2008, Unidym consumed large amounts of cash to scale up the manufacture of carbon nanotubes, scale up for the production and sale its first carbon nanotube based film product, acquire another nanotech company, expand its business development activities, and prepare for an initial public offering. In the first and second quarters of fiscal 2008, Unidym expanded its executive, technical and administrative staff for these activities. Unidym’s cash burn ramped from $2 million in the second quarter, $3.6 million in the third quarter and $4.2 million in the fourth quarter.

In the fourth quarter, it was clear that Unidym would be unable to meet its fund raising goals to support its 2009 cash needs. Moreover, technical development took longer than expected. Additionally, it became evident that dramatic change in the financial market would not allow an initial public offering. Starting in October 2008, several general and administrative positions were eliminated. Approximately, half of its team in its Houston, TX facility was put on unpaid leave to conserve cash. Further cuts to personnel and consolidation of facilities are planned to bring Unidym’s cash burn to 60% of its high water mark in fourth quarter 2008. However, Unidym will still need to obtain additional cash to fund its operations and obligations through fiscal 2009.

What is particularly depressing about this story is that the IP in question all came from the lab of Richard Smalley, one of the founding fathers of nanotechnology. So far it’s taken some $40 million to get, erm, nowhere. One day I’ll get around to adding up all the money spent on taking nanomaterials to market, it must be close to half a billion by now.

If at first you don’t succeed….Nanodynamics, one of the raft of diversified nanotechnology companies under pressure from investors to get an exit of any kind, have announced that they will be the first nanotechnology US company to be listed on the Dubai International Financial Exchange (DIFX).

You have to question the sanity of both the management and their advisors as pricing is expected to start next week.Nanodynamics attempted an IPO last year but shelved it after investors thought that raising $90 million on 2006 sales of $4 million may have been a bit too much risk to take. However, as the company was reported at the time of its last IPO attempt to be losing $1.5 million a month you can understand their need for capital.

The global credit crunch was the excuse for pulling out last time, and we can only assume, given the sea of red that covers trading screens from Tokyo to London this week, that the company is in quite desperate straits or is hoping that that Gulf based investors are dumber than those on Wall Street. The company claims to have chosen Dubai because “we are a global company with partners and customers around the world, including Europe, Russia, India, China and Japan.”