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RFID Investors Pour Millions Into Segments Old and New

This article examines private equity investments made in various segments of the RFID industry over the last 18 months. It is the conclusion of a two-part series. The first part listed publicly announced financing deals and analyzed why active RFID and RTLS companies attracted the most investment during the year.
Dec 12, 2007This article was originally published by RFID Update.

December 12, 2007—If you want to know where emerging companies and their backers think the RFID industry is going, follow the money. Active RFID and RTLS providers captured about 38 percent of the estimated $433.6 million in private investment that flowed into the RFID industry in the last 18 months, an analysis by RFID Update found. That made active RFID and RTLS the top-funded segment, an unofficial title it probably wrested from passive UHF, which includes EPCglobal Gen2 technology.

The first part of this two-part series detailed 28 publicly-announced private financing deals in the RFID industry and analyzed the ascension of the active RFID and RTLS segment (see RFID & RTLS Sees $433M Invested Over Last 18 Months). This installment identifies other segments that attracted heavy investment and the possible implications.

Although makers of EPCglobal Gen2 and other UHF technologies have been surpassed in venture financing, the segment continues to attract strong investor interest, with UHF-oriented providers Acsis, Alien Technology, Confidex, Impinj, and Tego receiving $75.1 million in aggregate, or about 19 percent of the total industry investment.

Venture funding played a major role in creating today's vibrant market for Gen2 and other passive UHF technologies, which is marked by growing adoption, maturing standards, product innovation, and a strong, competitive playing field. As the segment matures, companies may turn to other funding options such as initial public offerings -- Impinj has openly discussed the possibility, and Alien went as far as filing for an IPO before canceling the offering last year.

But early-stage investors may now look elsewhere for ground-floor opportunities with high growth potential. The near field communication (NFC) segment fits this bill, and attracted essentially the same venture capital in 2007 ($76 million) as the passive UHF segment ($75.1 million).

NFC is the underlying technology for current and envisioned cashless payment systems. The RFID-based technology potentially provides outstanding convenience for consumers, but many infrastructure and collaboration issues must be resolved before there is widespread adoption. Important standards were released earlier this year (see NFC Commercialization Reaches Key Milestone and RFID Forum at MIT Discusses the Future of NFC for more background).

INSIDE Contactless' announcement this week that it received $38 million in funding made clear the investment was based on the company's potential in the NFC market. "This is more than a financial investment, this is about a strategic partnership with key players who are committed to building and driving the NFC eco-system," INSIDE Contactless CEO Rémy de Tonnac said in the announcement. "Three years ago a similar strategic investment was made with Visa which brought the company to a leading position in the field of contactless payment. We hope that this new development for INSIDE will lead to a similar success in the NFC market."

INSIDE Contactless also raised $25 million in September of 2006. The $63 million in total funding it received during the tracked 18-month period ranks it second behind Precision Dynamics, which received $75 million. Innovision, which develops NFC integrated circuits (ICs), received the other $13 million invested in the category.

Coincidentally, the investments in the NFC and passive UHF sectors each approximately equal the $75 million that Chicago private-equity firm Water Street Partners put into Precision Dynamics, which was the single largest investment identified. Precision Dynamics develops RFID and bar code wristband solutions, which it markets to hospitals for patient identification, water parks and other amusement venues for crowd control, law enforcement for inmate identification, and to other industries. The large investment will be used to help Precision Dynamics penetrate the healthcare market, which is also a key vertical market for RFID and RTLS companies who market asset tracking systems.

Besides its size, the Precision Dynamics deal is notable because the company is known more for providing complete solutions than it is for developing a specific technology. Most funding went to companies who manufacture products. TrueDemand Software and Fluensee were the only pure-play software companies in the list. Acsis has extensive RFID software offerings, but also provides hardware and integration services.

The distribution of funds between emerging and maturing segments, active and passive technologies, and product and solution providers indicates there is confidence that RFID use will grow in many areas. This confidence may have been obscured throughout 2007 by media and other reports that focus on slower-than-expected growth in high-profile compliance programs, and the lack of publicly-traded RFID-focused companies. But the data reveals that investors bet more than $433 million on privately-held companies over the last year and a half, often on firms with limited track records or uncertain core markets. These investments have already led to new technology developments and product introductions, and more results will be seen in 2008 and beyond.
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