Biometrics: Promising, If Flawed, Technology –

NEW YORK – It is too soon to say whether venture capital firms will embrace biometrics the way they did biotech or some other technology that offered the promise of the next big thing.

Biometrics, a technology that is used to verify identity by recording unique body features such as fingerprints, patterns in the eye’s iris and facial features, has received enormous publicity in the days and weeks following Sept. 11. It is a growing segment of the security industry, according to Raj Nanavati, partner and founder of the New York-based International Biometric Group.

Nanavati said he has received dozens of calls from investors since Sept. 11 seeking information on public and private companies in the space. He thinks venture backing would be great for the $354 million biometrics industry, which is made up largely of small start-ups.

Right now, it is hot, albeit with flaws. It would not have prevented the Sept. 11 attacks, Nanavati said, and should not be viewed as an end-all solution. “We’re trying to be realistic about what it can and cannot do,” Nanavati said. “Biometrics is always implemented as one component of a security system.”

At IBG’s showroom of biometrics products, associate Jake Hong demonstrated the various products. For example, the face recognition camera was easy to fool. After a reporter’s expressionless face was captured in the system’s database, the system rejected a follow-up shot in which the reporter was grinning.

The iris recognition technology is more accurate but painstakingly time-consuming.

But there are some very good uses as well. An individual using a forged or stolen badge or ID card, if required to verify biometrically before entering a secure area, would likely be detected-his or her biometric would not match the biometric on file. An individual claiming a fraudulent ID can be identified from a database of known criminals and linked to the “enrollment” identification, which may prevent him or her from boarding an airplane.

Brian Ruttenbur, a biometrics analyst at investment bank Morgan Keegan says the information he has gathered from biometrics companies shows a three- to five-fold increase in inquiries, and in some cases, 10- to 20-fold increases since Sept. 11.

Due in large part to security concerns stemming from Sept. 11; Ruttenbur expects sales of biometrics products to increase 60% in the next year.

“Biometrics has been around for some time but it will be in vogue now,” said Joseph Tzeng, founder and managing director of Crystal Internet Ventures, whose firm received two unsolicited business plans from biometric companies the week after the Sept. 11 disaster.

While the biometrics industry includes industry giants like Siemens and Motorola, which have product units that cross into the category, the field is comprised largely of small companies who have raised money largely through family and friends.

But venture activity is slowing picking up.

Last month, Biometric Access Corp. closed on a $12 million series B round led by Perseus 2000 LLC, with additional participation by BAC board member David Peipers and his affiliates. The series B funding brings the total investment in BAC to $24 million since the company’s founding in May 1996. BAC will use the latest funds for continued development of its SecureTouch products for expanded technology research and to support the company’s dramatic growth. In September, Bionetrix closed a $16 million round led by Columbia Capital, with investments from Advanta Growth Capital, Carlyle Venture Partners, NextLevel Venture Partners and individuals.

In March, Authentec closed on $20 million, led by Texas Instruments investing $5 million.

Other biometrics companies that have announced recent fundings include DigitalPersona ($9 million), Ultra-Scan ($2 million) and eTrue ($5.5 million from Davenport Capital Partners).

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