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VCs Rediscover RFID

Deals are still hard to find, but interest has been rekindled by large-scale deployments in retail, manufacturing, health care and other sectors.
By Mark Roberti
Jan 26, 2015

We spend a lot of time and effort at RFID Journal cleaning up our list of premium members and registered users, because we understand that the most likely attendees at our events—and the most likely purchasers of radio frequency identification technologies—are those who have indicated their interest by subscribing (our mailings to partner lists have generated almost no responses).

You learn some interesting things from burying your head in your customer database. One thing I've noticed recently is a surge in registrations by those in the venture-capital community. Signups for our newsletters is up nearly 100 percent in the past six months.

For those of you unaware of the history, let me back up. In 2003, Walmart announced that it would ask its top 100 suppliers to begin tagging pallets and cases in January 2004 (see Wal-Mart Draws Line in the Sand , Wal-Mart Expands RFID Mandate and Wal-Mart Begins RFID Rollout). That triggered investments in many RFID companies by the venture-capital community. The technology was being hyped as a replacement for bar codes that would transform supply chains overnight. VCs pounced on the opportunity. If all bar codes were to be replaced by RFID transponders, there clearly was a lot of money to be made in the space.

But Walmart's efforts to foster RFID adoption in the consumer packaged goods industry were not matched by other mass-merchandise retailers. CPG manufacturers saw little benefit from tagging goods for Walmart. So, faced with a choice of going it alone or adopting a different RFID strategy, Walmart chose to switch its focus to apparel and categories with complex inventories (Wal-Mart Relaunches EPC RFID Effort, Starting With Men's Jeans and Basics and Putting Wal-Mart's Apparel Tagging in Context). RFID went into the chasm, and venture-capitalists lost money. From roughly 2006 to 2014, RFID was pretty much toxic to the VCs. There were a few deals here and there, but not many.

I first started to see an uptick in VC registrations on rfidjournal.com around the middle of last year. The pace started to pick up toward the end of the year. I also received three calls from private-equity firms asking me to recommend solution providers that are possible acquisition targets, and I received another request just last week.

Investors see the growth in the RFID industry and realize that there are opportunities to make money in this sector again. I agree with them. While the industry is more than a decade old, there are few dominant players. It is quite possible for a smaller company to make some smart moves—such as focusing on a niche primed for growth—and make investments in marketing during the next two years, and to then emerge as a major player once the market takes off. Some big players don't realize the threat, but in my mind, there are no guaranteed "gorillas" at this point.

I think the key to making money, if you are a VC or private-equity firm, will be to invest wisely during the next year or two, before the market really takes off. When RFID adoption starts to grow rapidly, the winners will largely have been chosen by the market, and their valuations will soar. So the time to invest is now.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below. To read more of Mark's opinions, visit the RFID Journal Blog, the Editor's Note archive or RFID Connect.

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