Alien Technology Corp. of Morgan Hill, Calif., is at it again.The 14-year-old — which sells UHF Radio Frequency Identification (RFID) products and services — is raising a $40 million pay-to-play Series I, an amount that will bring its total funding to a whopping $302 million, according to Thomson Reuters (owner of PEHub).
It’s an awful lot of money for a venture-backed company. But unlike other, mature outfits that have raised money from seemingly everyone in the Valley because their old backers eventually threw up their hands (mobile email company Visto jumps to mind), Alien’s investors seem to sticking with the company. At least, as of its most recent round, in April of last year, New Enterprise Associates, CMEA Ventures, and Rho Ventures have returned round after round.
So has Advanced Equities Capital Partners, a Chicago-based investment bank and broker dealer that marries wealthy individuals with late-stage venture deals. In fact, in a capital call form to investors about the $40 million that Alien is now raising, Advanced Equities is telling Alien shareholders that it’s in their “best interest!” to “fully participate” in the round, which “is structured to provide significant benefits to shareholders that purchase their pro rata shares of the Financing (including an effective repricing of all of the [Advanced Equities’] equity securities of Alien to $1.00 per share).”
There’s no question that continuing to bet on Alien is a big gamble for everyone involved — especially since IPO conditions forced it to yank a planned offering in 2007. But there’s also a lot at stake. ABI Research, headquartered in Oyster Bay, New York, estimates that combined revenues from RFID hardware, software, and services will reach $4.05 billion this year. It predicts in five years, revenues will hit nearly $8 billion.
Alien is one of the biggest suppliers of RFID tags in the world. The tags contain minuscule chips with unique ID numbers that allow its customers to track their goods, from pieces of luggage to retailer inventories.
Better, Alien’s tags fall into a category called “passive,” opposed to “active.” Active tags have batteries and can handle complex tasks, like watching over security of a lock, and issuing an alarm if necessary. They’re also expensive, costing between $5 and $30 per tag. Passive tags require no batteries and are powerless to transmit data. Instead, a device called a reader sends out a query for information from up to 30 feet away; the passive tag has just enough power to squeak out a reply, then essentially die again. Passive tags cost around 10 cents apiece — which makes a big difference in terms of the opportunities they can address. (The cheaper the tags, the more widespread their adoption.)
That’s the good news. The bad news, explains ABI’s RFID analyst Pete Poorman, is that just as the long-awaited promise of RFID nears fruition, competition is heating up. Poorman says a crop of smaller companies, like LA-based Mojix, are emerging to compete with likes of Alien as the price of both tags and readers fall. (Alien sells both.) Then there’s Seattle-based Impinj, which competes head-to-head with Alien on less venture capital ($122 million since its 2000 founding), and Intermec, which raised $3.3 million before going public in 1997 and is now a very big company. That’s saying nothing of Toronto-based Sirit, or of Motorola, which acquired Symbol, which acquired Alien’s archrival, Matrix, in 2004. “If you position Alien against Motorola, there’s a real challenge in distribution and support channels,” says Poorman. “Alien has a network of partners in various geographies, but Motorola sells direct to the entire world. With a $16 billion market cap, it’s just much, much larger and has more global presence as a result.”
Alien doesn’t disclose revenues but its sales were around $20 million in 2005, according to Thomson Reuters.