RFID Funds Still Available

By Andrew Price

Will Alien's failed IPO impact fundraising efforts?

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Many small RFID hardware, software and service providers are worried that Alien Technology's failed initial public offering might damage their ability to raise funding, because venture capitalists will be concerned that they won't be able to cash out on their investments by selling stock on the stock market. But venture capitalists and industry analysts say it's unlikely that Alien's failed IPO will have much adverse impact on fund-raising.

One reason is that only a small percentage of startups actually go public. The vast majority wind up being sold to large technology companies, and the market for RFID companies is growing stronger. In April, NCR, a provider of RFID integration and data warehousing services, purchased IDVelocity, an RFID middleware firm. In May, Lockheed Martin, the large U.S. defense contractor, purchased Savi Technology, a provider of active RFID systems, for a reported $400 million. In August, Dover Corp., a diversified industrial manufacturer, announced plans to acquire RFID label-application solutions provider Markem.

- It's unlikely Alien's failed IPO will stop the flow of funds.

The market for RFID vendors is only likely to get stronger. Large systems integrators that have no RFID practice are likely to acquire smaller firms that have significant expertise in RFID. Software companies with no RFID strategy are likely to purchase software firms, such as Acsis, GlobeRanger or OATSystems, that have proven RFID software systems. And large hardware vendors could jump into the RFID market by purchasing makers of interrogators. Dell Computer, for instance, could get into the RFID market when it matures by purchasing the assets and patents of a startup interrogator manufacturer. Dell's core competency in manufacturing millions of devices based on open standards would be well suited to making low-cost RFID interrogators.

Another reason the Alien IPO is unlikely to affect fund-raising is that RFID startups have other ways to raise money besides just going to venture capitalists. One option is to get strategic investments from technology partners. Intel, for instance, has invested in a number of RFID companies, including InSync Software and RF Code. Companies are also getting investments from end user companies (see "Getting a Return on [Strategic] Investments").