Analysis: Growing VC interest in European biometric market
The growing interest in biometrics by security-conscious governments and companies lead to growing VC interest
Growing product standardization and increased venture capitalist interest are the main drivers of the European biometrics markets, says a recent Frost & Sullivan report. In this growing field, both government and private customers are in support of standards which will ensure product quality, allow for interoperability, and limit costs, thus making this a very attractive field for venture capitalists. F&S finds that European biometrics markets earned revenues of $370.1 million in 2005 and estimates this figure to grow to $948.8 million in 2008.
The biometric markets depend primarily on venture capital spending (an estimated 80 percent of it being funded by venture capitalists). There is a problem here, however: Venture capitalists base their financial commitment on the success of a project. Investing on an interest-return basis, they ensure ownership of intellectual property (IP) rights and retain the IP rights in case of pre- closure. “With increasing scope for venture capital investments, there is an issue of IP rights that is being raised,” says F&S Business & Financial Services analyst Janani Sankaran. “How prepared is the European biometrics market to combat this challenge?”
Emerging technologies such as non-automated fingerprint identification system (Non-AFIS), facial recognition, and voice verification are likely to drive the market further. Security-conscious governments imposing stringent regulations such as European biometric passports, the national ID program, and the new Schengen information system-II are expected to bring in more revenue to the European market.
A major challenge for industry participants is the rapidly changing technologies in this dynamic industry, something which necessitates higher investments in research and development. To ensure survival, companies must constantly create new products or upgrade old ones. “The survival of smaller companies depends largely on their ability to devote a greater share of their revenues to research and development,” explains Sankaran. “However, companies unwilling to spend large sums on technology investments are instead purchasing from unreliable market participants, therefore risking even more costly technology outlays in the necessary future.”Â
