In an interview to mark the end of 2011, Marco Beckmann, CEO of Nanostart AG, looks back, reports on current developments and takes stock of share price performance.

Mr. Beckmann, a turbulent year on the stock markets is coming to a close. The European debt crisis and the high volatility on global capital markets have cast a shadow on investor confidence. What were things like for Nanostart?

Beckmann: 2011 was indeed a very turbulent year on the stock markets. The current situation for listed companies is by no means an easy one. We too have clearly felt the rising uncertainty on the part of our shareholders over the past year. Nanostart’s shares suffered heavy price losses, and inquiries and reactions show that confidence is dwindling. If we only look at stock market performance then Nanostart did not have a particularly good year.

And how was the operational side of things?

Beckmann: In operational terms – and you have to see this separately from share performance for now – we’re satisfied with 2011: We entered into key strategic partnerships and have further consolidated our position as a leading investor in the nanotechnology field. We also extended our business model and are focusing more on our role as a partner to governments in nanotechnology venture capital funds. This is something we really pushed this year. Shared nanotechnology investments with governments will mean that we can increasingly plan our future income, allowing us to leverage opportunities while reducing risk. Creating the appropriate structures for this is something that initially requires groundwork in the form of investments – time and staff.

How does share performance now relate to operations?

Beckmann: We’re not immune to the stock market environment, but that alone is certainly not the deciding factor for our disappointing share performance. No doubt there were occurrences at individual equity investments that contributed significantly to this trend.

It would be interesting to hear your take on this first of all. Do you mean the events at your portfolio holding MagForce?

Beckmann: Developments at MagForce certainly had a crucial influence on Nanostart’s share performance. There were delays at the company as the start of commercial operations for NanoTherm therapy for brain tumors took more time than initially planned. Ultimately this was also reflected in our share price. We, too, had anticipated a speedier market launch. But it is also clear that delays at young technology companies tend to be the rule rather than the exception and that this does not necessarily say something about the quality of the technology.
However, as MagForce is a significant investment of ours, its falling share price also meant a drop in our net asset value. This is the total value of all investments. It is mainly dominated by the market values of the two listed holdings MagForce and ItN Nanovation. All the other – non-listed – portfolio companies are included at cost only, even if they are now worth more than when we made our initial investment. Positive developments and appreciation by our non-listed holdings therefore cannot be seen directly by the outside world.

What is the situation at MagForce?

Beckmann: Let us first look at the facts: MagForce was granted EU approval for NanoTherm therapy following more than twenty years of research and development. Patients with brain tumors can now be treated using this therapy. Health insurance funds are starting to reimburse the costs of this treatment. The therapy has great potential and the company has an experienced management team that is now on the right course. The reinforcement of the team of Dr. Jordan through Prof. Tawfik and Ms. Salomon has been a real windfall for the company.
Leading medical experts are now looking at this issue, which is in itself a major success. There are also already options for MagForce’s long-term financing. I see all of this as the right kind of signals and I am still very positive about MagForce.

And what is in store for MagForce?

Beckmann: We are continuing to take a very hands-on approach in the cooperation with our portfolio companies. Our investment managers work closely with the management of the individual companies. This is all the more important in challenging situations. In MagForce’s case, for example, we need to reduce costs, make efficient use of capital and also make headway with options for strategic partners among our contacts. My opinion is that collaboration with top partners will be a major factor in MagForce’s future success. I don’t like to see young technology companies left to flounder, having to manage and do everything by themselves.

Earlier you mentioned expanding Nanostart’s business model. Can you explain that?

Beckmann: So far we have primarily invested in companies directly. We have always tried to be the biggest investor so as to offer our holdings not just capital but also the corresponding support in strategic decisions or matters of commercialization.
Now, however, a growing number of governments are also promoting nanotechnology development in their own countries because they’ve realized the huge value of nanotechnology to business and society. So they launch special programs to subsidize young nanotechnology companies, for example. Venture capital funds have proven to be the right approach and Nanostart’s expertise makes it the ideal partner.
Take Singapore’s example: We set up Nanostart Asia, an asset management company, to invest in nanotechnology start-ups in Singapore through a fund as a partner to the government, and this has been highly successful.

What is the advantage of the fund structure?

Beckmann: This creates additional value for our investors – practically on top of the part of the portfolio that we invest in directly. Thanks to its successful investment in the Singapore fund, Nanostart Asia is participating in its positive performance. The ongoing remuneration – the management fee – ensures that our Singapore subsidiary pays for itself. This means that it is adding value independently of the portfolio. We are now looking to repeat the success of this model in another market, namely Russia.

What is the exact situation with your activities in Russia?

Beckmann: We were selected by the government-owned investment company RUSNANO and the governor of the Perm region as the fund manager of a €50 million nanotechnology venture capital fund. A few weeks ago, we acquired an asset management company domiciled in Moscow that has the necessary license to manage funds in Russia and that is now trading as our subsidiary, Nanostart Russia Asset Management. The fund is currently being launched and will mark our first step into the Russian market. We have worked towards achieving this over recent months and will invest in the first holdings next year.

How do you see your partnership with RUSNANO?

Beckmann: In the same way as our partnership with the Singapore government, we believe that RUSNANO represents the best possible partner for entering the market from our perspective. The company has capital of around US$ 10 billion, which it invests around the world to promote nanotechnology in Russia. As such, we find ourselves in a situation that I expect to be highly beneficial for Nanostart in future. Above and beyond this, too, there are a large numbers of additional points of connection, including at a portfolio level.

You mean the fact that RUSNANO also invested in your ItN Nanovation last spring?

Beckmann: Yes, that is one of the points concerned. RUSNANO has made a strategic investment in ItN. Among other things, ItN’s patented nanoceramics are used in coatings for power stations and foundries in order to prevent the build-up of deposits in industrial processes involving high temperatures. ItN recently announced that RUSAL, the world’s largest producer of aluminum, has successfully tested a special coating developed by ItN for casting molds. Large-scale application is now being tested at RUSAL.

How are things in ItN’s second product division, ceramic flat filters?

Beckmann: ItN’s ceramic flat filters are used, for example, in sewage treatment and pre-filtration in the field of reverse osmosis for drinking water treatment. The company has taken a key step forwards in the past year. As it announced a few weeks ago, a joint venture has been agreed with the Saudi-Arabian partner Juffali and a syndicate of German industrial investors in drinking water pre-filtration. I personally think that the joint venture and the business behind it in Saudi Arabia is one of the most exciting current developments in our entire portfolio.

You’ll have to explain that more closely.

Beckmann: Water is very much a hot issue in Saudi Arabia. ItN also has an ideal partner at its side in the Juffali family, one of the most influential industrial families in the Middle East. Juffali’s partners include companies such as Mercedes-Benz, Siemens, IBM and Dow Chemical. ItN is getting USD 2.35 million in advance under the joint venture for its production expertise. Juffali has more than five decades of experience in the joint establishment of production facilities and the corresponding sales opportunities. I think that choosing the right partner is a major success factor, not just for Nanostart but for our portfolio holdings as well.

In spite of this, ItN reported last week that it has used up half of its share capital. This sounds unsettling – what happened?

Beckmann: You’re absolutely right that it sounds unsettling, which is why it caused quite a stir. However, this report was mainly due to accounting effects. It is not necessarily unusual for a growing technology company, such as ItN, whose main capital is its expertise, to briefly drop below half of its share capital. Nonetheless, this still has to be reported under the German Stock Corporation Act. It occurred that ItN utilized half of its share capital because spending for major projects had to be financed in advance. These include, for example, the joint venture in Saudi Arabia and a current pilot project with six containers in the US. The patents, that we estimate account for an eight-figure amount at ItN, either cannot be capitalized or cannot be capitalized in full under conservative German accounting regulations.

At the beginning of the interview you mentioned significant progress at your portfolio. Can you provide examples of this?

Beckmann: Firstly there’s the progress I just described at ItN Nanovation. Our BioMers investments, which is held through the Singapore fund, is no doubt also making very good progress. The company has developed a transparent plastic wire with physical properties similar to those of metal wire. Based on this, it’s possible to make dental braces that are practically invisible. When you’re speaking to someone who’s wearing them it takes a few minutes before you notice – if you notice at all. This means the end of the ugly braces that teenagers all over the world are still wearing today and the dawn of victory for transparent SimpliClear braces by BioMers. Marketing is underway on the product’s domestic market of Singapore and had just begun in the US as well. In a few years SimpliClear will also be available in Germany.
Our other equity investment Namos is hoping to present its technology, which should save substantial amounts of precious metals in the manufacturing of catalytic converters for cars, to its initial customers next year.

Will Nanostart close out the year with a profit?

Beckmann: We already published our best ever half-year figures in the summer. Naturally, even shortly before the end of the year, it is hard for an investment company to forecast its exact results. It depends on the respective financial statements of its holding companies and whether the auditors want to see write-downs. But I am highly confident that we will again end this year with a good profit.

Thank you, Mr. Beckmann.