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October 16, 2003
 By Paul Bonanos The Antioch, Calif.-based maker of tiny motors lands a third round of venture funding. NanoMuscle Inc.'s tiny motors are drawing big attention from investors. The Antioch, Calif.-based company announced a $16 million third round of venture funding from a syndicate of at least 10 investors, including corporate partners. New investors included Vision Capital of Burlingame, Calif.; Firsthand Capital Management Inc. of San Jose, Calif.; Capital Valley Ventures LLC of El Dorado Hills, Calif.; NetPartners of Brussels and Milan; Greyhound Fund and AFA Private Equity Fund, both operated by John Hancock Financial Services Inc. of Boston; Schneider Electric SA of Rueil-Malmaison, France; PacRim Venture Partners of Palo Alto, Calif.; and AutoVision GmbH, the venture investment arm of automaker Volkswagen AG of Wolfsburg, Germany. Returning to the syndicate was Crossbow Ventures of West Palm Beach, Fla Other previous investors that did not participate in the current round included toy manufacturer Jetta Co. Ltd. of Hong Kong; design firm Ideo Product Development Inc. of Palo Alto; DaimlerChrysler Capital Services, the venture investing unit of DaimlerChrysler AG of Stuttgart, Germany; Band of Angels Management Co. of Menlo Park, Calif.; and Silicom Ventures LLC of Los Altos, Calif. NanoMuscle previously announced a $10 million second round in spring 2002 and raised an initial angel funding from friends and family. NanoMuscle chief executive Rod MacGregor said the startup retained Ariadne Capital of London as a placement agent and Cooley Godward LLP as outside counsel. He would not give a valuation for the company, nor would he say whether the valuation had risen or fallen since the previous round. NanoMuscle expected to raise $15 million in the current round, but it received interest from so many firms that it expanded the round, according to MacGregor. "We were in the awkward position of turning down money and scaling everyone back," he said. "We elected to go with many investors making smaller contributions to the round, rather than a few making large investments." NanoMuscle develops paper-clip-sized motors that derive power from shape memory alloy technology, rather than the electromagnetics used in traditional motors. Shape memory alloys such as the nickel titanium used in Nanomuscle's motors physically change shape when electric current is passed through them. Then, the rate of contraction of the metal as it returns to its original shape can be controlled precisely. So far, NanoMuscle's actuators have been used in consumer electronics, toys and automotive applications such as rear-view mirrors, comfort seating and dashboard needles. NanoMuscle will use the round to focus primarily on those markets, according to MacGregor. Vision Capital partner Brendan Richardson compared the materials science involved in NanoMuscle's motors to the emerging field of nanotechnology, although he said the two were not exactly the same. "Nanotechnology is sort of an overhyped word," Richardson said. "Nobody has really nailed down a definition of it. In the sense that 'nano' refers to one billionth of a meter, this definitely fits the definition," he said. The term "nanotechnology" is more frequently used to describe other chemical technologies applied in very small scales, such as coatings used for superconductivity in chips. Richardson said NanoMuscle has no direct competitors using nickel titanium, although he conceded that other materials could be used for similar applications. Piezoelectric technology, which uses ceramics to develop small-scale technology, is currently being commercialized, although Richardson said its uses were more likely in high-temperature applications or in medical devices. He also said that a new class of polymer alloys that displayed similar properties was at least three or four years from commercialization. Although the company may be unique in its marketing of the technology, Richardson said, nickel titanium technology is nothing new. "Raychem spent 15 years and $100 million trying to commercialize this technology, and they couldn't do it," said Richardson. He credited MacGregor with unlocking the potential of the technology in everyday applications. MacGregor said that industrial manufacturer Raychem Corp. discovered the unique properties of the alloy in the 1950s, but the technology was used only for space research and military applications. He said the material initially had a short service life but that NanoMuscle had developed a method of encapsulating the alloy in such a way that it is now much more reliable and has a longer lifespan. Richardson added that the inclusion of automakers in the investor syndicate was among the keys to commercializing the technology. "There's usually a rule that any new technology in the auto industry will take 10 years to adopt," Richardson said. "But we expect to be way ahead of that -- we've got contracts with our strategic partners and two or three other automakers, and we expect to have the technology in cars within a year or two." The new funding, Richardson said, was earmarked principally for business development and sales, and that continued product development would be limited to customization for specific applications. He said the money was expected to last three to four years, although the company expects to reach breakeven cash flow within 12 to 18 months if it completes the manufacturing deals it has in progress. |
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