Read the Policy - VCs and D&O Insurance

Lloyd Harmetz, Morrison & Foerster LLP

It's no secret: today's venture capitalists seek to have their portfolio companies obtain director and officer (D&O) insurance policies. This is especially true when the VC appoints one or more members to the board of directors. Many forms of venture financing documents in use today include a covenant that obligates the company to purchase and maintain a D&O policy.

Although this trend is spreading, venture capitalists may not be focusing on all of the material issues that need to be considered in this area. True, VC's may be part of the discussion as to which insurance carrier should be selected, the amounts of coverage, and the price of the policy. However, other key terms of the D&O policy may not address all of the special needs of a VC and its board representative. In fact, the insiders of the portfolio company who usually negotiate the terms of the D&O policy do not always have the same interests as the VC's representatives. This conflict of interest creates the possibility that the final policy terms will be disadvantageous from the VC's perspective.

The purpose of this article is not to describe all of the material terms that could or should be contained in a D&O policy. (See below for a summary of several important D&O insurance terms.) Rather, this article seeks to highlight some of the key D&O insurance questions that tend to have a disproportionate impact upon a VC. A VC and its representatives should be considering these issues when the time arrives to review a portfolio company's plans with respect to D&O insurance.

Question 1: Can the misstatements of another director or officer be imputed to the VC's director?

A company's executive officers have greater access to corporate information, and are more likely to be aware of any inaccuracies in a company's representations, than the outside directors. Accordingly, these individuals are more likely to have responsibility for any misrepresentations made by a company, whether such misrepresentations are made in the company's D&O insurance application, or in other documents, such as a securities prospectus. VC board representatives do not want to risk losing their D&O insurance coverage in any of these situations due to misstatements by a corporate officer, who has better access to information.

As a result, VCs should ask whether a proposed D&O insurance policy contains so-called "severability provisions." For example, if insurance coverage is denied due to a misstatement in the policy application, such misstatements should only be attributed to the executive officers responsible for the misstatement, or to the company itself; however, coverage should continue for the outside directors who do not share equal responsibility for such misstatements. (Similarly, venture capitalists should resist insurance applications that request all directors to sign the application; an application of this kind may increase the likelihood that a misstatement in the application could be used as grounds to deny coverage to an outside director.)

On a similar note, it is customary for D&O policies to have so-called "wrongful act" exceptions. For example, a director or officer will not be entitled to coverage if the loss resulted from his or her fraud. Here too, VC's should seek for severability provisions that would prevent a corporate officer's fraud from resulting in the VC representative's loss of coverage.

Question 2: Can the company's failure to cooperate with the insurer be held against the VC's representative?

D&O policies often contain "cooperation clauses" that require the insured parties in certain situations to furnish information to the insurer, such as when the insurance company is considering the reasonableness of a proposed litigation settlement offer. In most cases, the officers of the insured company, and not the outside directors, will possess the information that the insurance company is seeking. That being the case, it is important for VC's to review the policy to ensure that any failure by the company to furnish information to the insurer under the policy, or to otherwise cooperate, will not result in a loss of coverage for its representative on the board.

Question 3: Does the policy encourage the company to promptly reimburse outside directors for their losses and expenses?

Before answering this question, let's introduce some terminology. Most D&O policies include two different types of coverage:

  • Direct payments by the insurer to an officer or director. This form of coverage applies in situations where the company is unwilling to, or prohibited from, indemnifying an officer or director. This form of coverage is sometimes called "A-Side" coverage, or "individual" coverage. An insurance company might be required to make payments under this coverage, for example, when a bankrupt company cannot satisfy its own indemnification obligations to its officers and directors.

  • Reimbursement payments by the insurer to the company. This form of coverage applies in situations where the company does make indemnification payments to an officer or director. If these payments are covered by the policy, the insurer will reimburse the company for the indemnification payments that it has made. This form is sometimes called "B-Side" coverage, or "corporate reimbursement" coverage.

In practice, B-Side coverage generally involves higher deductibles and retention amounts for the insured parties than A-Side coverage. Accordingly, a company may have an incentive, where possible, not to indemnify a director directly, and to cause the insurer to do so under the A-Side coverage. Management of a company might try to avoid satisfying the company's indemnification obligations to its officers and/or directors in order to avoid these higher deductibles and retention amounts. If this occurs, the consequences may be adverse to a VC and its board representatives, because it adds another potential step before the director may recover its litigation and related expenses. It may cause delays in an outside directors' reimbursement payments, while the insurer and the company squabble over the characterization of the payments to be made.

One remedy to this problem is provided by some insurance companies themselves: their policies contain a "presumption of indemnification" provision in their policies, which is designed to require the company to provide the indemnification. These insurers seek to ensure that a company's corporate indemnification decisions are not made in order to maximize the level of coverage provided under the policy in this manner. A VC may properly ask whether a proposed policy contains a provision of this kind, and seek its inclusion if needed.

Question 4: What is the extent of an outside director's D&O coverage?

Typical language in a D&O policy often restricts coverage to situations in which an outside director is sued solely "in his or her capacity as a director." This type of provision might be too narrow where other possible actions against a VC's representative can be envisioned. One typical example would be a situation in which a director is planning to sell shares of the company's stock in an underwritten offering or a shelf registration statement. He or she may have originally received these shares in the same financing round as the VC itself made its purchase, and may be entitled to registration rights. In such a case, in the event of any material misstatement or omission from the relevant prospectus, the director might be sued not only in his or her capacity as a director who signed the registration statement, but also in his or her capacity as a "selling shareholder." In this type of situation, a policy limiting coverage to actions arising due to the individual's position as a director may be too narrow. Provisions of this kind should be tailored to the types of relationships that outside directors have with the relevant company.

In addition, a VC's board representative may not be expected to serve as a long-term member of a management team. He or she may leave the board at the time of an IPO, at the time of a company sale, or at the time that a more significant investor takes priority over the current investors. Accordingly, VC's should ensure that the coverage provided under a D&O policy for claims relating to facts and circumstances during the director's tenure will extend to such director even after such individual has departed from the board, or after the completion of any merger transactions with other companies. Former directors sometimes receive unpleasant surprises in the form of a plaintiff's complaint long after they have stopped serving the company.

Question 5: Are the exclusions from coverage appropriate? (Read the fine print.)

A standard D&O policy will have a long list of exclusions from coverage. Many of these exclusions are fairly standard, and a company and its directors will often have to live with them. Some of these exclusions include:

  • the insurer will not pay losses consisting of fines and penalties;

  • the insurer will not pay for losses arising from acts outside the scope of the directors' corporate duties;

  • the insurer will not pay for losses that are caused by the director's receipt of improper payments;

  • the insurer will not pay (at least under the D&O policy) liabilities arising out of environmental claims.

Several types of exclusions should be subject to negotiation by the VC. For example, a "dishonesty exclusion" bars coverage for losses arising out of the director's improper conduct. Ideally, this form of exclusion should require a final judicial adjudication before it can be used to deny coverage -- a showing of facts by the insurer, no matter how compelling at first glance, should not be sufficient to deny coverage.

In addition, special attention should be given to the so-called "insured vs. insured" exclusion. This fairly customary exclusion was originally designed by insurers to prevent improper claims coverage by a company and its affiliates, where one insured party under a policy, such as the company itself, brings a legal action against another covered party (such a director), in a situation where the two parties can collude to cause a payout under the policy. To properly protect outside directors, these clauses should be narrowly tailored to make sure that they do not inadvertently exclude coverage in a so-called "derivative" action, in which shareholders bring an action for recovery against an officer or director in the name of the corporation itself. A second important exclusion with respect to this type of provision would be claims brought by a bankruptcy trustee, so as to provide protection to the directors in the event claims are raised in the bankruptcy context. Although each of the parties-in-interest in such an action may technically both be insured parties, it is not necessarily appropriate that a director would not be subject to coverage.

Question 6: Is the company's policy consistent with the demands of any policies maintained by the VC?

A recent trend in the D&O insurance market has been the creation of new policies for VC's. These policies are designed to cover losses and expenses incurred by the VC's representatives as a result of their service on the boards of portfolio companies. This is a new market, and it may take some time before any standard types of terms emerge. If a VC has a policy of this kind, it would be wise to review the terms to see whether it imposes any requirements upon the terms that must be maintained by a portfolio company. For example, a VC's policy may only provide for payment if other sources of insurance payments are exhausted, including the policies of the relevant portfolio company. It is possible that such a policy could require that the terms of the portfolio company's policy will automatically provide the first level of insurance coverage, whether or not the VC representative has a source of insurance other than the company's policy.

Question 7: Is a proper officer of the company taking responsibility for D&O insurance coverage?

VC's should not assume that all of the proper homework has been done prior to finalizing a D&O policy. Has quality counsel for the company reviewed the terms of the policy, or investigated whether there are any charter or by-law provisions, or unique state law or regulatory issues, that might bar the company from obtaining the desired D&O policy?

In addition, who prepared the application? Experienced insurance counsel or insurance professionals? As discussed earlier, misrepresentations in the policy application could serve as grounds for the insurance company to deny coverage, or to rescind the policy entirely.

Going forward, does the company have appropriate personnel in place to administer the policy when it is in place? Unfortunately, companies often risk their coverage by not properly complying with the administrative terms of their policies. Claims must be notified on a timely basis (with proper amounts of detail), as well as certain events such as registration statement filings and some types of major transactions, such as mergers and acquisitions. Some policies require notification to the carrier if insured directors are placed on the board of newly-formed subsidiaries; if such notice is not delivered, the insured director may not be covered from liabilities arising from his or her position with that new entity. In addition, policies must be renewed from time to time, and as a policy approaches the end of its term, a company may need to work rapidly to obtain a new policy on a timely basis in order to prevent any lapse in coverage. The value of a D&O policy may be substantially reduced if the VC is not confident that its portfolio companies have proper personnel in place to ensure that coverage will not be lost.


D&O insurance policies have evolved over time, and most providers use very different forms of insurance agreements. As a result, it is critical that qualified individuals consider the needs of a company with respect to D&O insurance, and carefully review all of the material terms. VC's should join in this process to protect their own needs, and the interests of their board representatives. During periods when D&O insurance is in short supply, and providers are loathe to write generous policies, a VC's ability to negotiate the provisions may be limited. However, due to the special interests of VC's, it is hard to understate the importance of working to ensure that a D&O policy will provide the desired protection.

Key Provisions of D&O Insurance

In reviewing the terms of a D&O policy, companies and VC's should pay attention to the following important terms:

Issuance Term Questions to Ask

Limits and Deductibles

For what portion of a loss are the insured parties responsible?


Which individuals, and which corporate entities (and predecessors and successors) are covered? Is there "entity coverage" for the company's losses in, or settlements of, litigation?

Transactions Covered

Are IPO's and follow-on offerings covered? M&A transactions?

Claims Covered

Does the policy cover administrative proceedings and investigations, as well as law suits?

Employment Practices Claims

Does the policy cover wrongful termination, harassment, discrimination and related employment claims?


What types of claims are carved out of the policy?

Payment of Loss

Will the insurer advance claims before a final judgment or settlement?

Discovery Period

After the termination of the policy, can the insured parties seek coverage for claims arising during the period of the policy? For how long after termination?

Selection of Counsel

Who decides which lawyers can control the defense of a claim?


How will the insurer allocate insurance payments where some related losses are covered by the policy, while others are not?


Under what circumstances can the insurer cancel the policy?

For an overview of D&O insurance policies, including several sample policies, see Joseph W. Bishop, Jr., The Law of Corporate Officers and Directors, õõ 8.01 to 8.25 (2002); Paul F. Matousek, Indemnification and Insurance for Directors and Officers, A-19 (The Bureau of National Affairs, Inc., Corporate Practice Series No. 54-2nd, 2001); and Joseph P. Monteleone & Nicholas J. Conca, Directors and Officers Indemnification and Liability Insurance: An Overview of Legal and Practical Issues, 51 Bus. Law. 573 (1996).

Mr. Harmetz is an associate in the New York office of Morrison & Foerster LLP, where he focuses on securities transactions, mergers and acquisitions and other corporate matters.

The question addressed by this article is whether the environment surrounding Nanotechnology has reached a point that is attractive for venture investors. This article will attempt to answer that question by approaching it from several angles. In part one, we will define Nanotechnology and introduce the reader to the ground covered thus far by scientists in the field. In the second part, we look at why venture investors have only recently entered onto the Nanotech stage. In part three, there will be an analysis of the problems faced both by entrepreneurs and venture investors in Nanotech and a look at the potential future of venture investing in the "Small Tech" industries.

Overview of Nanotechnology

At its essence, Nanotechnology is the process of building materials and machines from the "bottom-up" on the molecular scale. [4] The idea, originally offered in 1959 by one of the twentieth century's most renowned scientists, Dr. Richard P. Feynman, is the formative basis for what has become modern Nanotechnology. The idea that scientists and engineers could design and assemble structures at the molecular level to create machines and materials capable of actions and properties never before seen in the natural world is both the allure and the danger of Nanotechnology.

Nanotechnology is not new. In the environment, Nanotechnology is all around us; it is the fundamental tools and mechanisms of biology. Nanotechnology in the modern, human-manipulated world is also not a truly recent concept. Chemists and biologists have been creating materials on the molecular scale since the first decade of the twentieth century. [5] However, it is only within the last ten to fifteen years that scientists and engineers, from backgrounds in chemistry, biology, physics, materials engineering, computer science, and elsewhere. have found correlation amongst their various works in the "nanosphere." Ultimately, it is the product of massive advances in science and technology, along with the work of key individuals such as Dr. Eric Drexler (along with his organization, the Foresight Institute) and more recently, people such as Raymond Kurzweil [6] and even former House Speaker Newt Gingrich, that have helped pushed Nanotech to the scientific, social, and political fore.

A Sense of Scale

Nanotech operates in the world of the ultra small. To give some sense of scale, the "Nano" in Nanotechnology refers to the Metric System unit of measurement for one billionth of a meter. Thus, the nanotechnologist is operating on the scale of 1/1,000,000,000 of a meter - work in "Nanometers." To some extent, the mind has a hard time wrapping itself around dimensions at this scale. Casting back to high school science might provide a better perspective. When your physics teacher told you about atoms, he or she might have mentioned that atoms are about one-tenth of a nanometer across. Sitting in the middle of the scale of structures that are still usefully measured in nanometers is the DNA double-helix, weighing in at a hefty 2.3 nanometers in width. In the tangible world, a nanometer would roughly equate to 1/50,000 the width of a human hair. [7]

At the opposite end of the scale from the size of Nanotech's materials and products are the costs associated with Nanotechnology research and development. As was mentioned earlier, the typical Nanotechnology project could easily contain research elements from any number of "pure" science fields including: chemistry, physics, biology and their derivatives, in addition to engineers from electrical, chemical, material, and mechanical backgrounds. Combining these personnel needs with the various tools of the trade, massive computing power, often in conjunction with scanning-tunneling or atomic force microscopes, and the costs of R&D for any given Nanoscale project can tumble rapidly beyond the reach of any entrepreneur or some large institutions.

Picking Teams: Defining the Segments of Nanotechnology

Any panel discussion on "Nanotechnology" will have a proclivity to degenerate into an academic turf war if not carefully contained. The difficulty of defining exactly what falls within the scope of "Nanotechnology" is a daunting task in itself, with strong academic and economic motivations at issue for those defining the segments of Nanotech. As such, while the terms used here are fairly typical, they are by no means universal in their application. A good starting point in defining "Nanotech" generally, draws on two items already mentioned above. First, for "Nano" to be "Nano," the scale of the resultant product must be on that scale - in the range of single or small clusters of molecules. This is important because of a recent trend in companies which add "Nano" to their name without adding any "Nano" to their product line; much as ".com" was once the surname of corporate choice. [8] Second, for a product to fall into the realm of "Nanotechnology" in the Feynman sense, the end product must have been created from the "bottom up." Essentially, this requirement eliminates a great many "pseudo-Nano" products, often in the Bio or Bio-pharma sphere, that are created from a "top down" approach of development; essentially chipping away at a micro or macro scale material until it reaches nanometer size. [9] While these two limitations may feel picky in their granularity, they have a huge impact on whether or not the team developing the product will be eligible for public or private funding in addition to how the product will be received among competitors and purchasers.

With the general definition of "Nano" aside, a second useful designation is between "wet" and "dry" Nanotechnologies. Simply put, "wet" Nano relates to products and processes developed with a biological - often human - component, or based on organic materials. [10] The field of wet-Nano generally contains "Nano-bio" (or "Bio-Nano" depending on the speaker) along with various forms of Nano-Pharma (Nano scale pharmacology) and other related, biology based, products. Typically, the "wet" fields of Nanotech are considered nascent but further down the road of Nanotech, if for no other reason than the associated Food and Drug Administration (FDA) regulatory compliance issues that delay the commercialization of a product. However, this does not meant that companies have shied away from the field, nor does it mean that products have yet to enter production or commercial availability. To the contrary, some of the earliest Nano companies, including those such as Nanofibers and Protiveris are on the cusp of bringing products to market.

"Wet-Nano" aside, it is the various fields of "Dry-Nano" that are the most diverse and require a further degree of segmentation. "Dry-Nano" includes a variety of products engineered at the molecular level for uses too various to consider. Essentially, there are four main categories in this area: materials, electronics, sensors, and the tools that make each of these Nano products possible. In the "Segmentation" section below, these various fields, in addition to the general field of "wet-Nano," are defined in greater detail along with a description of some of the investments that have or will be made for each sector.

Who has the Purse Strings?

With this high-level understanding of what it means for a product to be considered a "Nanotechnology," the next issue is to understand who has been funding the research that is turning Nanotechnology into a reality. This section will cover the five main sources of funding for Nanotech that have been used thus far:

  • Federal Funding
  • State and Local Funding
  • Government Funding Abroad
  • Corporate Investments
  • Venture Capital Investments

Each one of these categories has played a distinct role in making Nanotech enter a phase of research and development, rather than pure scientific speculation. More importantly, understanding where the money has come from thus far addresses the ultimate question of whether the time is now right for further venture investing in Nanotech.

Government Funding in the US - Federal - The National Nanotechnology Initiative

In a move that surprised many in the Nanotech field, President Bush, as part of his 2002 budget, requested an increase in funding for the National Nanotechnology Initiative (NNI) from $422 in 2001 to $604 million. The NNI, founded under President Clinton in 2000, is the backbone of non-private research funding in Nanotechnology. Eight federal agencies receive funding including: the National Science Foundation (NSF), Department of Defense (DOD), Department of Energy (DOE), the National Aeronautics and Space Administration (NASA), and the National Institute of Standards and Technology (NIST) - with the bulk of the funding going to the DOD and NSF.

In the Executive Summary for the initial grant application to Congress, the White House stated:

The President has made the National Nanotechnology Initiative (NNI) a top priority? The Administration believes that nanotechnology will have a profound impact on our economy and society in the early 21st century, perhaps comparable to that of information technology or of cellular, genetic, and molecular biology.

The mandate of the Initiative is solely to "support long-term nanoscale research and development and breakthroughs."

The goal of the NNI is not venture oriented, but rather, an attempt to insure that the US does not fall behind in the effort to advance the various Nanotechnologies. The method of the NNI grants are fairly typical, with each of the agencies tasked with a specific set of goals for funding Nanotech research. Each agency stipulates the terms of the grants it will fund as to size, term, and eligibility, but each agency specifically denies funding for-profit organizations. [11]

Overall, the NNI has been extremely efficient in organizing grants to a variety of prospective technologies in a large array of Nanotechnological field. Assuming its continued funding, the NNI is likely to play a critical role in the further advancement of Nanotechnology as it effectively shifts the incredible costs of Nanotech out of the competitive, private funding arena and offers the opportunity for truly creative investigation into fields of Nanotechnology which may not appear initially attractive to investors.

Government Funding in the US - State and Local

An interesting phenomenon is also underway for government funding in Nanotech at both the state and local level. Small Times, a magazine dedicated to the various "Small Technology" fields of Molecularly Engineered Mechanical Systems (MEMS) and Nanotech, recently announced its first survey of the "hot spots" for Nanotechnology companies to locate. The study, which gauged the level of research, industry, innovation, workforce, production costs, and the availability of venture capital funding, provided an interesting glimpse into the contest to woo Nanotech companies to their vicinity. Among perennial favorites like Silicon Valley (ranked #1) and Boston (ranked #3) were several newcomers to the field of localities willing to take the risk on new technologies. Among the contenders for the crown were Southern California (#2), the New York / New Jersey Metro area (#4), the Austin / Dallas / Houston corridor (#5), and Chicago (#6). Other frontrunners included Albuquerque, NM, the North Carolina Research Triangle, Metro D.C., Michigan, and Ohio. [12]

What makes these states and localities innovators in the Nanotech space is not only their willingness to embrace "Small Tech," but the variety of creative means that they are using to fund its development. Many of these localities are providing a variety of tools such as tax relief, guaranteed funding, research and development dollars to state institutions, organizational assistance, technology transfer programs, and in the case of New York and Texas, state sponsored research programs. [13] This combination of direct and indirect funding has eased the startup burden on new Nanotech companies and shifted a degree of associated risk to the state and local government.

Government Funding - Abroad

On a daily basis, the list of countries jumping on the Nanotech investment bandwagon grows. Most countries have indicated a dual interest in Nanotech investing. The first aspect of investment is a pure worry that if they fall behind in the race for miniaturization through Nanotechnology, the loss of time in catching up may never be regained. More importantly, many countries are looking to Nanotech and its economic potential as a means of stirring economic growth and job production in the long term.

Amongst the key foreign players are Japan [14], (at approximately $200 million US dollars in federal Nanotech funding) the UK, France [15], and amongst other recent entrants, the Peoples' Republic of China, which suggested that it would be spending heartily on Nanotechnology in the coming years as part of the country's "tenth five-year plan."

It remains to be seen as to what exactly will become of the various initiatives underway to advance Nanotechnology around the globe. It seems likely that one or two potential results will occur, either alone or in tandem. The first possibility is that some locations will become best known for research in specific fields of Nanotech, much like China has already done in identifying "materials" Nanotechnology as their primary field of Nano interest. [16] However, there is also a strong undercurrent of nations that are beginning to work together to provide greater breadth to their Nanotech funding in a variety of fields as has occurred by way of the EU, and in a similar pact between Russia, China, the EU, and the US.

In the end, it is only the spirit of the competition that will matter for international Nanotechnology initiatives. Regardless of their internal nature - whether the goal is to generate funds directly for the government via a quasi-venture model or through economic stimulation - it is the hope of many that these initiatives will rest solely in the economic sphere and not enter into a "Small Tech" arms race. As former Speaker Gingrich intoned at the recent NanoBusiness Alliance conference in New York City, the first Nano organization devoted to the cross cultivation of business and government interest in Nano, the value of healthy competition between nations vying for dominance in the various Nanotech industries only leaves the people of all nations better off in the long run. [17]

Corporate Investments

As is typical with many new technologies, major corporations have foot the bill for a great deal of Nanotechnological research thus far. Largely, this research has not come in the form of what might be called "primary Nanotechnologies" - core Nano materials such as carbon nanotubes and various particles such as dyes and sensors - but rather, in the form of research for how these Nano products fit with or displace materials currently in use. Motorola plans for continuing a line of research into the use of Nano materials for molecular memory technologies Intel and IBM have also been involved in work with various Nanotechnologies, particularly the potential of carbon Nanotubes for use in fab-less semiconductor production. Similar examples could be cited for a variety of other Nanotech segments.

Investments by the venture arms of these companies have a huge impact on Nanotechnology companies. First, they provide ready-made customers for products built by smaller Nanotech companies. Intel and IBM have both made clear that the likelihood of any Nanotech startup displacing them at any point in the foreseeable future is minute. While this may be disappointing to some, it is a fact for the time being. However, that should by no means discourage inventors and potential investors from backing new Nanotech companies competing in the semiconductor market. In the same discussion of the lack of "killer app" Nanotechnologies currently on the table, managers at Intel and IBM's venture arms have made clear that they continually invest in the potential technologies of the future. [18]

Apart from acting as customers and investors, large companies also will play a significant role in the formation of growth and exit strategies critical to the venture lifecycle of Nanotech. Many new Nanotech companies have found that corporate partnerships or even outright licensing of IP can provide them with the funding they need for more advanced work with their own brand of Nano products. Such a model of technology licensing has already been employed in two instances by McGovern Capital, a seed stage / merchant bank investor in Nanotech. Additionally, while there has thus far been little in the way of active merger and acquisition of Nanotech companies, some speculate that this is a combination of a lack of fully formed products within the Nano industry in conjunction with a general lack of M&A activity across the full breadth of the tech sector. [19]

Venture Investing - 2002

The NanoBusiness Alliance has recently addressed several of the key questions surrounding private investment in the Nano space. In their most recent survey, the NanoBusiness Alliance estimates that there are some four hundred and fifty Nanotech startups currently operating. It is not clear how many of these companies are venture backed or how much venture funding has gone into Nanotechnology startups in total. [20] Moreover, it is only in recent months that institutions and individuals are looking to harness to power of various forms of "Angel" funding. Recently there was the introduction of a new "Angel Network" for individuals willing to act at the most early stage of venture investing in Nanotech. Ultimately, the best method of understanding venture investing thus far in Nanotechnology is to look at some of the investments that have been made in various Nanotech sectors, the investors making them, and the companies that they are funding.

[1] Lee Gomes, Beware of Valley's New Fad: Nanotechnology, Wall Street Journal, May 10 2002, at B1.

[2] Dr. Michael C. Roco, National Nanotechnology Initiative and a Global Perspective: "Small Wonders," Exploring the Vast Potential of Nanosciences, National Science Foundation Symposium, Washington, DC March 19, 2002.

[3] Small Tech's Hot Spots, smalltimes, March/April 2002, Vol. 2, No. 2, pg 27-28.

[4] See generally, Richard P. Feynman, There is Plenty of Room at the Bottom, (1959), reproduced in The Pleasure of Finding Things Out: The Best Short Works of Richard P. Feynman, (1999) at 117. (This work by Dr. Feynman is a seminal text in the field of Nanotechnology, and along with Dr. Drexler's Engines of Creation, sited below, is required reading for individuals interested in Nanotechnology.)

[5] K. Eric Drexler, Engines of Creation: The Coming Era of Nanotechnology, (1986) at 4.

[6] Raymond Kurzweil, The Age of Spiritual Machines: When Computers Exceed Human Intelligence, (1999).

[7] B. C. Crandall, Nanotechnology: Molecular Speculations on Global Abundance, 1 (1997).

[8] Beware of Nano-Pretenders, The Forbes/Wolfe Nanotech Report, May, 2002, vol. 1, no. 3, at 1.

[9] See generally, Drexler, note 5, at 4.

[10] See The Center for Biological and Environmental Nanotechnology (CBEN) website.

[11] Smalltimes, note 3, at 27-28.

[12] For more information, visit the Texas Nanotechnology Initiative.

[13] More recent numbers are available at the Institute of Nanotechnology. An interesting study of how the Japanese government has allocated funds is available from Dr. Roco of the NSF.

[14] Genevieve Oger, Spotlight: France, Nation finally introducing entrepreneurs to its top research institutions, Small Times, March/April 2002, vol. 2, no. 2, at 42.

[15] See Jen Lin-Jiu, China, Emboldened by Breakthroughs, Sets out to Become a Nanotech Power, Small Times, December 17, 2001.

[16] See generally, Jack Mason, Visionaries see the Promise and the Nightmares of Nanotech, Small Times, May 22, 2002.

[17] Candace Stuart, Nanotechnology's Potential Needs Decades of Work Before it is Realized, Expert Panel Says, Small Times, March 19, 2002.

[18] Howard Lovy, Nanofinancing 2002 Conference: IBM, Intel, Advise Nano Companies to Start Small, Small Times, March 21, 2002.

[19] Tech Takeovers are Scarce, Despite Fallen Stock Prices, New York Times Syndicate, April 21, 2002.

[20] The difficulty of arriving at an approximation of investment in the Nanotechnology sector is a function of the current economic environment and a lack of a clear rule defining what constitutes a "Nanotech" company.