A view from Venture Capitalists investing in RFID
Jun 12, 2006 Raghu Das
What investors look for
When making an investment, one VC at a recent RFID investor forum explained that they look at the technology first and do not think too much about the markets initially. They do not want to invest in a me-too technology. Once the technology is more developed they look for markets with an open mind and often they find ones which they had not initially expected. For example, it was commented that some companies did not expect to get involved in RFID, such as Alien Technology (focusing on displays initially) and Impinj (expecting to license low power memory). IDTechEx has also seen companies move downstream in the value chain, from manufacturing tags only to also manufacturing readers (which was sometimes necessary as tag performance is closely linked to that of the reader). However, once product has been established the investors commented that customers had to be found quickly. A common mistake is to throw good money after bad and not cancel a project when it should be binned.
Opportunities in RFID
Quan Ventures felt that any company trying to start up now with passive RFID products would find it very difficult, as RFID supply is not a problem here and pricing is very competitive, with some vendors selling at a loss to increase their market share. A market with more opportunity that was discussed was that for semi-passive and active RFID, which Quan Ventures felt was not being served very well. IDTechEx agrees, and we have seen the number of companies in this area treble over the last 18 months. Attend our active RFID Summit events in Europe and the USA this autumn to learn more www.activeRFIDeurope.com .
Investors are also tracking developments in printed electronics. Some have been very progressive, such as Intel Capital investing in Plastic Logic, but some investors are more cautious, thinking it may not develop as planned. They cited Gallium Arsenide as an example - it was hailed to be the alternative to silicon in the mid 80's but did not succeed, and one investor commented "he still has the scars"! While a valid point, IDTechEx feel that printed electronics will make a significant impact on our lives, as it offers electronics at new price points and robustness, utilising printing equipment. However, whether RFID is the best first application for this technology remains to be seen. We feel that much of the success of printed electronics will be the creation of new markets. For example, Estee Lauder have already launched a cosmetic skin patch powered by a Power Paper printed battery. This enables them to premium price the product by offering new services - 3 single-use patches sell for £38 (approx $75).
Over the next 24 months, several investors commented that they felt the biggest opportunity in RFID will be tackling RFID infrastructure architecture. Several investors felt that suitable RFID architecture is not here today - companies have treated it as an incremental change to their existing products and they have underestimated the data that will be generated. It was felt by some that a single central database is not feasible and a more dispersed "edge" database is needed. Investors felt a fresh look is needed at this challenge and it may be easier to do this from scratch.
One investor felt that UHF will win at most item level tagging as most retailers and now the military refuse to use anything else. He is excited with the latest developments of Near Field UHF (See our independent report on the topic). He finished by saying that in his experience "it has never been the best technology that wins".