Walking down Southampton Row in central London, a perceptive pedestrian may suddenly discern that the air is cleaner. The sidewalk has been treated with a nanotechnology-enabled product containing catalytic properties that break down molecules in harmful pollutant emissions in the air. Similar concrete slabs treated with titanium dioxide are reducing pollutants during rush hour by 60 to 70 percent on the streets of Milan and Paris, according to the BBC. The air purifying pavement is just one example of how nanotechnologies are starting to be used in real-life environmental applications.

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Investors are seeing green. However, Lux Research analyst Ted Sullivan cautions that one should be wary of anyone claiming a universal ‘nanotechnology premium.’ He notes that Nanotechnology is not an industry, as many attest, but rather a broad toolkit that will have an extraordinary impact on many industries, including those industries employing clean technologies.

Nanotechnology material platforms are introducing superior properties and quantum leaps in performance, addressing the cost and efficiency issues that plague many clean technologies. In power devices, carbon nanotubes promise longer lasting batteries with higher power densities. Nanofibers are sieving out previously undetected toxins in water filtration systems. Nano-enabled solar cells will one day compete on costs with fossil fuels. It is tempting to want to place orders of magnitude increases on price-to-earnings ratios. Harvard economists have even devised new tools to value nanotechnologies.

Nanotechnology portfolio managers, however, say they use the same valuation metrics applied to other technology sectors. Admittedly, nanotechnology can be tricky to value. “There is no such thing as a nanotech pure play,” says Pearl Chin, Managing Director of Seraphima Ventures, a nanotechnology investment fund that combines both the venture capital and angel investing approach. Instead, one nanotechnology platform can have applications across many different industries. Discrete nanotechnology products are seldom introduced.

The relative immaturity of nanotechnologies, many still incubating in labs or intellectual property portfolios, also poses valuation issues. While many nanotechnology investment portfolios are picking up promising IP, Chin says it can be a risky strategy that may leave the investor open to patent infringement lawsuits. “Licensing technology does not have nearly the returns as suing someone who is successfully making money from a patent infringement,” says Chin, who focuses on nanotechnology products in use today. Seraphima values nanotechnology companies with demonstrable products against their industry peers.

More nanotechnology investment funds are forming strategic partnerships with research labs and universities to access promising IP and very early stage investments. These nano portfolios also are applying valuation techniques that optimize the use of capital in a portfolio that includes R&D, with a view to capturing the upside potential in emerging nanotechnology while minimizing risk.

In addition to employing a discounted cashflow valuation, nanotechnology investment fund Advance Nanotech uses a real options valuation methodology, says associate Jeff Hickman. “One key value proposition for Advance Nanotech is to actively pursue IP protection as well as provide a business wrapper around the technology so that we commercialize technology in a business applicable format.” The real options valuation model provides Advance Nanotech with a “gated checkpoint” along the way to evaluate risk at each checkpoint and provide the opportunity to divert funds in other directions if required.

A greater valuation challenge may be that the majority of publicly traded nanotech activity resides within large companies today. Chevron Technology Ventures’ vice president and managing executive of venture capital, Jim Gable, recently stated that Chevron now viewed itself as an energy company, not an oil and gas company, as it deploys nanotechnology across areas as diverse as solar, hydrogen, coal and oil and gas. These companies also often rely on the real options valuation model to help them strategically deploy R&D capital within their organizations, and increasingly analysts are using similar models to try and measure and value the nanotechnology exposure within large companies.

Lux Research’s Sullivan warns that there is no universal ‘nanotechnology premium’ for companies branding themselves as ‘nano.’ Much like any other capability, companies will be viewed favorably in the marketplace if they can demonstrate that they are using nanotechnology as an enabling tool to increase their competitiveness. “Is there a nanotech multiplier or premium? Will the company be more profitable or see an increased earnings multiple because it is using this technology? Only if the technology gives its products a definitive edge in the marketplace that is effectively translated into profits.”

Hopefully, similar air purifying nanotechnology will be applied to the back seats of London’s black taxis, which have the highest concentration of ultrafine particulate matter, according to a recent research study by Imperial College, London.

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