Alien Technology raises $38 million for RFID technology

Venture Beat — Mon, 06 Oct 2008 06:00:53 -0700

Alien Technology, a maker of tiny radio tags and readers, has a somewhat bumpy history.

Back in 2006, without ever recording a profit and with losses exceeding sales, it filed a for a scary IPO, but was forced to pull it and then cut its worforce. It has burned through whopping $302 million. Now the once-struggling company is back with a new round of $38 million in venture funding.

The round is only slightly smaller than the $40 million it was seeking in the summer. It was led by existing investors Advanced Equities, New Enterprise Associates, Rho Ventures and Sunbridge Partners. The financing is well timed, closing just before the economic crisis and suggests that the company has moved on from a hype cycle a few years ago (it helps that it has a new CEO) to real products and revenues. Its chips are being used in a wide range of technologies, from tracking evidence in crime labs to locating pallets of goods in massive warehouses.

“We raised the round quickly, but I’m glad we closed our round before Wall Street collapsed,” said George Everhart, chief executive of the company (left).

The Morgan Hill, Calif.-based company makes radio-frequency identification chip tags and readers that scan the data stored on the chips from dozens of feet away. Its claim to fame is “fluidic self-assembly,” a futuristic manufacturing method developed by UC Berkeley John S. Smith, who founded Alien in 1994.

Alien’s factories in Fargo, N.D., and San Jose have machines that take the tiny RFID chips at put them into a river of goo. The goo has chemicals that make the chips align themselves into little packages where they can be sealed and attached to a radio antenna. (If you don’t like my technical description of goo, there is more information here. Basically, the chips flow through a river until they settle into little receptor slots on a piece of film. Then they are sealed and tethered to an antenna).

The system is so efficient that it can be used to make billions of chip assemblies. Alien says it can package two million chips per hour, compared with 10,000 per hour with other packaging methods. Early on, this wasn’t an advantage because the volumes were too low.

Beyond making the tags, Alien also makes that high-value readers that can scan the data and send it off to software-tracking programs. Alien can thus be a vertical supplier of anything its customers need to implement an RFID tracking system. But the strategy exposes it to more competitors in each piece of the RFID business.

Seattle-based Impinj and big chip maker NXP make chips. Avery Dennison and UPM Raflatac make inlays, or chips packaged with antennae, and Impinj and Sirit make readers. Another rival, YottaMark, competes with RFID tracking by using old-fashioned bar code stickers. The barcodes cost a fraction of a cent, while RFID tags cost 5 cents or more. Hence, YottaMark’s technology can be used on low-cost items such as produce.

While its RFID technology was innovative, Alien’s business plans were flawed. It was caught up in a wave of hype around RFID chips, which are being used for tracking goods in warehouses and throughout entire supply chains. Critics blasted the chips because they might one day be used to track people as part of a surveillance society, while others feared they were unsecure. On top of that, Alien got ahead of itself as it tried to expand faster than the market justified.

In August, 2006, the company pulled its IPO and laid off 50 of its 250 people. Stav Prodrodmu, its chief executive, quit. He was replaced by Everthart in January, 2007. Since that time, the company has seen its business grow dramatically. Smith is still with the business.

Everhart said that the company is growth has been good, with revenues in fiscal year 2008 up more than 50 percent over the previous year and unit volume of assembled chips, known as inlays, up more than 76 percent in the same period. The company set revenue records in each of the past four quarters, but Everhart declined to comment on profitability.

When Everhart first started, he said the company got excited if it got orders for 30 readers and five million tags. But now orders are typically 2,000 readers and tag orders are in the tens of millions. Growth markets include pallet and item tracking in warehouses and asset tracking. Examples of the latter include keeping track of court files in a county clerk’s office or tracking drug shipments. The company has 200 employees.

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Alien Technology raises $38 million for RFID technology