In the nascent marketplace of nano/disruptive-edge technologies, there’s no clearer delineation than the big companies from the little ones. The following is my take on how both fit into your investment portfolio.

The common denominator for these companies is their dedication or rededication to research and development (R&D). The biggies aren’t going to hit home runs with nanotech; their goal is to hit singles and doubles and drive profits home that way.

While governments have made large investments in nanotech and other vanguard technologies, you really see the viability of a technology when the industry starts ponying up money to see what a technology can do for it.

The technology must:

• Have broad applicability across the company’s business line;


• Have current or near future applications on current product lines;


• Be easily put to market without large amounts of red tape or governmental approval.

Generally companies that have higher-than-average R&D budgets and hold ever-increasing patents are best prepared to take advantage of new and important technologies.

Nanotech is one of the most fundamental shifts in materials science, largely because other technologies have brought us to the point where we can build and manipulate structures on an atomic/molecular level. And what we’ve learned is that there’s much more to discover.

For example, some materials behave differently on an atomic level, in a quantum state, than they do on a mass scale. Being able to isolate the unique features at a nano level and apply them to a mass scale was unthinkable two decades ago.

This nano revolution is simply the confluence of decades of technological evolution in various scientific fields. It’s companies that have maintained the priorities of science over marketing, and vigorous research over repackaged products.

Innovation usually starts at the top. Companies that have embraced new technologies almost always have corporate leadership that spearheads such innovation on the management side as well as on the production side.

And many of these companies aren’t based in the US. This is indicative of two things. First, as US firms looked to quarterly earnings as milestones during the 1990s, many other firms were plowing ahead with long-term R&D that are beginning to bear fruit and will likely give a few–if not more–years head start, especially in nanotech “lab to fab.”

Second, for decades people came to the US for high-skill work and top-notch educations in the sciences; but that’s no longer the case. GE built an engineering school in India, and Microsoft has begun training programmers in China.

This trend is just in its infancy; US technological supremacy is a thing of the past. Corporations succeed when they make money, not wave national flags. One US firm has come back from the brink of oblivion by eschewing most of the commonly held US corporate beliefs during the past decade, and it’s become a major global player because it adopted an “old school” approach to its business.

Alternatively, companies from abroad are slaking US consumers’ thirst for cutting-edge, high-tech solutions. The non-US based firms below have significant presences in the US marketplace.

Yet many US firms are finding it increasingly difficult to break into overseas markets–partly because of national pride, partly because of price competitiveness, partly because of cultural ignorance and partly because US brands don’t have the cachet they once did (yet another sign of the democratizing effect of technology).

Companies have also found ways to incorporate nanotech into their current operations without being hamstrung by having a foot in the old world and a tenuous foot in the new world of nanotech. They’ve embraced the future, instead of skeptically viewing the implications of fundamental technological change. They see the flattening of the world, as Thomas Friedman puts it, as an opportunity, not a threat, to their hegemony.

Crossing The Rubicon

There’s a world of difference when buying little nano compared to big nano. Primarily, in little nano–like little biotech and little tech before it–you’re buying an idea. It’s really about finding a company that has a product with home-run potential for a small firm.

To get to that home run, the company has to have the ability to hit singles, doubles and triples. But it’s not really the batting average that’s as important as its potential to take that one ball out of the park.

This is where all the risk lies. Business plans usually look horrible–lots of money being doled out with little coming back in. More than a few start-ups will also be schemes to enrich the owners with no other goal in mind.

Some will have great technology but no leadership to get themselves across “the valley of death” (i.e., from the laboratory bench to the marketplace). Others will try to stake a claim where too many competitors are already slugging it out, and they won’t have enough product differentiation to set themselves apart either on the patent side or the market side.

But say a company gets through the valley of death, circles the patent wagons around its core technology successfully and has a business model that starts to pan out. Do investors then get ready for a ride on eBay or Google or Microsoft?

Well the most likely scenario, just like it was during the big Internet boom, is that one of the big guys comes in and buys out the little guy. But that’s not such a bad deal for shareholders.

If you got in early enough with risk capital, you’ll probably make some nice money and then either cash out or swap your exhilarating little tech stock for shares in the new sensibly diversified hegemon that bought it out. That’s reality.

The fantasy? You buy a little company and through grit, ingenuity and determination–and a couple lucky breaks–this small firm turns into a multi-billion-dollar gorilla in a matter of months or years. If that’s what your expectation of buying disruptive-edge technology companies is, pucker up, because you’re going to be kissing a lot of frogs.

Another approach some investors take is to think they can outsmart the Street by trading these small and volatile shares. They’d have better luck busting the bank at the Bellagio. You can’t beat the house at its own game.

Successful investors know that the method doesn’t change for solid companies or little companies: Buy companies that have a product line (or lines) that keeps money coming in the door, and work like hell to get the blockbuster product and themselves as much visibility as possible.

Solid companies find partners that can help expand their visibility while defraying some of their marketing and development costs. Then they ramp up production to get their product as price competitive as possible.

These companies have all it takes to make something of their technologies. And the sectors they’re focused on could mean big payoffs down the line. Just getting stock issued can be a huge undertaking for these firms, especially since the tech meltdown in 2000.

This doesn’t mean all the tough times are behind them; it simply means they’ve cleared a path and reached a higher tier. But, as the saying goes, the higher the monkey climbs up the tree, the more he exposes his derriere.

These firms have simply exchanged one set of challenges for new ones. As an investor, you’re better off buying a little bit of several firms, rather than a lot of one. They’re all swinging for the fences, and you improve your odds considerably by having five firms stepping up to the plate than just one.

And remember, this isn’t a game for sissies.

These stocks will bounce all over the place, and some might crash and burn while others may soar. Don’t live and die by these stocks. They’re supposed to be fun, not cornerstones of your retirement portfolio.