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Venture capital flows to firms targeting ID theft
By Jim Hopkins, USA TODAY
SAN FRANCISCO - As fears of identity theft soar, investors are piling into start-ups creating anti-fraud technologies. Venture-capital firms in this year's first six months pumped as much as $70 million into companies selling anti-ID theft software vs. about $101 million for all of 2004, according to the MoneyTree Survey, which tracks venture funding.
The new technology lets grocery shoppers pay without handing sensitive information to cashiers. It protects online-banking customers by memorizing the rhythm of their keyboard strokes. And it helps retailers catch shoplifters posing as customers.
The financing surge comes amid well-publicized cases this year involving millions of Social Security numbers and other personal data.
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"Identity theft and fraud are in the paper all the time," says Gus Spanos, executive vice president at Pay By Touch Solutions, explaining investor interest. The company recently announced $130 million in hedge fund and private equity firm financing.
Investors - including prominent grocery store investor Ron Burkle of Los Angeles - are backing companies crafting biometric and other technology for use by:
.Supermarkets. Pay By Touch technology at Piggly Wiggly and other stores lets consumers register fingerprints, credit cards and personal checks so they can pay by swiping a finger across readers at checkout stands. It protects customers by limiting the number of times they hand credit cards and other ID to employees. It protects merchants by ensuring customers aren't using someone else's ID.
.Banks. Software created by BioPassword helps online banks stop criminals using a legitimate customer's ID by looking for patterns in keystroke rhythms.
The software checks a user's keystrokes during account log-in. Then it compares the rhythm of those strokes with samples taken when the customer initially signed up for online account access. The Seattle company says it expects $8 million in venture funding this month after getting $5.5 million from other investors this year.
Another start-up, 41st Parameter, lets banks review log-in histories of a customer's computer. When a customer logs into an account, the software checks the history. If it doesn't match because, for example, the customer is using someone else's PC, the software might prompt the bank to seek more information. That might mean phoning the customer to verify identity. The Scottsdale, Ariz., firm received $4.4 million in venture funding last spring, when media were awash in news of ID thefts. "The time was right," CEO Ori Eisen says.
.Retailers. Infoglide Software targets retailers trying to reduce theft by criminals posing as customers wanting cash refunds for stolen clothing and other goods.
Its technology roams through a retailer's databases for signs the suspected thief never paid for the merchandise. It then creates a risk "score," prompting cashiers to ask for more photo IDs, offer only a store credit or seek help from supervisors. Austin-based Infoglide is talking to venture capital firms and expects to close on as much as $10 million in venture money before the end of the year, CEO Michael Shultz says.
