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Getting a Return on (Strategic) Investments

End-user companies are sinking tens of millions of dollars into RFID startups—and they're looking for more than a monetary payback.
By Courtney Macavinta
Oct 01, 2006—When Pfizer contributed to an $8 million Series B investment in SupplyScape this May, the funds represented more than a cash infusion for the developer of anticounterfeiting RFID applications for the pharmaceutical industry. The investment from the Pfizer Strategic Investments Group was another marker of a growing trend. In less than one year, RFID technology firms have gotten a shot in the arm—to the tune of tens of millions of dollars—and not just from the usual suspects known as venture capitalists.

A slew of strategic investors are increasingly placing their bets on RFID companies, hoping to get more than a monetary return on their investment. They are current or future RFID customers that want to have a hand in how RFID solutions are developed and brought to market. They also want to improve their knowledge about the emerging technology, sharpen their business strategies and bolster their bottom line. Along with Pfizer, the list of end users that have invested in RFID includes Dow Chemical, DuPont, Kaiser Permanente and United Parcel Service (UPS).

End-user companies are seeding RFID startups with tens of millions of dollars.
"These [end-user] companies have specific needs [for applications] that will help them gain market share, improve operations or improve their competitive advantage," says Andrew Nathanson, automatic identification and data capture practice director for technology market research firm Venture Development Corp. (VDC). The most recent strategic investments by end users, he says, "have been right on. They are good fits and good models, and both companies will benefit."

When end users make strategic investments in enabling technologies—in this case, RFID—it sends a strong signal that there is a growing market for a given product segment. It's also a key factor in moving RFID from research and development to deployment, analysts and industry watchers say.

"It's a vote of confidence—and companies vote with dollars," says Mark Johnson, president of RFID Tribe, a 2,000-member national association of RFID professionals that helps match its members with potential angel investors. "When end users are investing, in general they are investing in technologies that will be helpful to their company strategically."

Strategic Thinking
Perhaps the most active end user to invest in RFID technology is United Parcel Service. "We make investments in companies in emerging technology areas for us," says Donna Barrett, technology public relations manager for UPS. "And one area we've been monitoring for over a decade is RFID. The primary purpose for these minority investments is to gain knowledge and insight."

UPS sees value in using RFID for certain applications, such as helping its clients manage their warehouses and track large, costly items or perishable goods. In fact, UPS considers investing in RFID technology firms one of the "four pillars" of its RFID strategy. In July, the UPS Strategic Enterprise Fund contributed to a $14 million investment pool led by Siemens Venture Capital for semiconductor maker G2 Microsystems. The funding will help G2 ramp up production of its real-time location systems for tracking and monitoring assets in the automotive, health-care, biopharmaceutical and chemical industries, among others. (UPS funded G2 in 2004 as well.)

G2 isn't the only RFID company to get financial support from UPS. In December 2005, Impinj, a Gen 2 RFID tag maker, secured a $26.5 million round of funding from a group of investors that included UPS and was led by GF Private Equity Group. And in 2000, UPS invested in Savi Technology, a company that provides RFID technology to the U.S. Department of Defense (DOD) and was acquired by Lockheed Martin in May for $400 million, according to the San Jose Mercury News.
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