Indian-born Hrushikesh Loshi is a postdoctoral student at Northwestern University researching magnetic nano particles. As he works with an electron microscope on the project, funded by the National Science Foundation, Loshi predicts that “in the next few years, nanotech will definitely be commercialized.”

But even with the promise of thousands of commercial applications for nanotechnology -- the science of reducing materials to tiny sizes with new properties -- finding enough funds to support expensive research projects like Loshi’s is still a challenge.

It's becoming even more difficult as economic hardship spreads beyond the troubled housing and financial services industries and into high-tech industries.

“The biggest difficulty in finding partners is the economy. People are cutting back, though we have not seen too much yet,” said Chad M. Risko, Scientific Officer & Industrial Liaison for the International Institute for Nanotechnology.

At the Institute for Nanotechnology, a $445 million research and educational facility located at Northwestern University’s Evanston campus, the weak economy is a double-edged sword.

The Institute is worried the economy's pain may soon make it even harder to find corporate partners, but at the same time it is getting queries from companies interested in farming out their research and development to cut costs as their own businesses weaken.

Through its Nanotechnology Corporate Partners program, the Institute currently maintains 18 partnerships, each of which provide between $5,000 and $50,000 annually. It hopes to keep that number growing.

According to Risko, some companies want to partner with the Institute in order to be aware of scientific and technological breakthroughs and to attract the most talented students. But companies that want a long-term business relationship bring the biggest dollar amounts to the center, he added.

One of the main challenges for new nanotech startups in the Chicago area comes with finding enough venture capital funds to support their often-expensive projects.

According to Vincent Caprio, vice president and event director for the nonprofit NanoBusiness Alliance, “Most venture capital firms are in California or in Boston. Those two groups founded most of the high-tech startups in 2000 and 2001, but they got spoiled by the whole dot-com era. So they didn’t come to the Chicago area and [nowadays] they are more interested in solar, green and clean companies.”

But where private funding has fallen short, the state and federal governments have stepped up.

Kathleen Cook, director of operations and strategic initiatives, said the Institute has $445 million in research and education funding, up nearly 30 percent from $350 million two years ago. It houses 150 researchers, including undergraduate, graduate and post-doctoral students, and faculty members.

The federal government provides around $250 million or 56 percent of the total. Around $100 million, or 23 percent, comes from foundations and gifts. Another $70 million, or 16 percent, comes from the state of Illinois, and about $25 million, or 5 percent, from N.U.

“The state of Illinois has been very supportive and has done a great job. It’s just a problem of capital. The risk is too high, the barriers of entry are too high and the amount of capital to manufacture any product is too high,” Caprio said.

Vinayak P. Dravid, professor of materials science and engineering, said the support given by the state of Illinois has been crucial but that nanotechnology also needs other funding sources to carry on with the considerable expense of research and development.

“We are very happy that the state of Illinois has recognized that nanotechnology has the potential to really create jobs in the Midwest, but we need the continuation of this support in the future,” said Dravid. “We have partners who have invested in the Institute at a small level but we need to see large investment groups either from the Midwest area or from others in the country.”

To solve this problem, Cook explained that scientists work together with the Kellogg School of Management to study the potential opportunities of commercializing nanotech breakthroughs coming out of the labs.

“Thirteen companies have seen the light out of the Institute so far and even some of them have gone public,” Cook said.

But for many of these companies, such as Nanotope Inc. and Polyera Corp., it will still take some time to launch their products and become profitable.  Even large, well-established companies such as Baxter International Inc. struggle to see the potential benefits of nanotech.

“It’s very difficult for certain companies such as pharmaceuticals to make a buck on this, to tell you the truth. They are moving a little bit more slowly than some would like to see,” said Mark Ratner, N.U. professor of chemistry.

Standard & Poor’s analyst Herman Saftlas said that even though most of the biggest pharmaceutical companies invest in nanotechnology, it's still a small part of their overall investment in new product development. “We’ll have to wait a few years to see what happens and to see bigger consequences,” Saftlas said.

But in order to undertake nanotech research, money is not the only asset needed. Highly talented and skilled researchers are also important, and in that regard Northwestern's Institute for Nanotechnology is in good shape.

“Chad Mirkin, one of the greatest practitioners and the top nanotechnology expert in the country, is at Northwestern. He has been able to commercialize its research breakthroughs,” Caprio said.

Mirkin, the Institute’s director and mastermind, is the most-cited nanotech scientist in the world, according to www.nano-biology.net. Mirkin was not available to comment on this story.

And N.U. continues investing in top-notch professors. The most recent to join the faculty was Scotland-born Fraser Stoddart, a high-profile chemistry professor from the University of California at Los Angeles.

Dravid recalls that when Stoddart was asked why he came to Northwestern, he answered: “If you were an artist in the 19th century you would go to Paris, and if you are a nanotechnology scientist in the 21st century, you come to Northwestern.”