BREAKDOWN: Venture capital is pouring into facial recognition

The biometrics industry has seen a huge amount of venture capital investment this year, with facial recognition startups attracting particularly strong interest through early-stage funding rounds. Selfie integration specialist Jumio, for example, announced a $ 150 million funding round in March; and AnyVision recently raised $ 235 million in a funding round led by SoftBank, one of the world’s most prestigious funds focused on high-tech growth opportunities.

Statistics compiled by CrunchBase indicate that at the time of writing the investment capital for facial recognition companies in 2021 already stands at $ 524.9 million, suggesting explosive growth from the 622 million. $ 5 million in funding that has been spent on facial recognition for the whole of 2020. So is facial recognition entering a new phase of hyper-growth?

Perhaps. But it’s important to zoom out and get a feel for the big picture. Private equity may be pouring into facial recognition in 2021, but it’s actually paltry compared to a previous wave of investor enthusiasm.

Little by little, then suddenly

The real boom in private capital for facial recognition began in 2016. The previous year, a total of $ 130.8 million had been generated through rounds of funding in this space. In 2016, that number jumped to $ 548.3 million. And it continued: the cumulative total of capital raised through funding rounds rose to $ 1.03 billion in 2017, then fell to just under $ 2.5 billion in 2018 before falling back to 843, $ 9 million in 2019 and $ 622.5 in 2020. If the pace of financing had not picked up so strongly in the first half of 2021, we could have concluded that private investment had already peaked there. a few years.

So what happened? Why has interest in this space exploded in recent years? A number of factors were probably at play, but a few major developments are worth highlighting. The U.S. Customs and Border Protection Agency of the Department of Homeland Security didn’t start testing the use of facial recognition at airports until the middle of the decade, and it really got the hang of it. dispatch to what would become a large and ambitious biometric border control program the following year, prompting private sector air transport partners to begin exploring the benefits of biometric technologies themselves. This matched a growing interest in facial recognition among national security and law enforcement agencies – another trend that has gained prominence in recent years.

The boom in mobile biometrics

But the flow of venture capital is not driven so much by public sector activity as by what happens in the private sector, and particularly in areas of contact with consumers. And that brings us to what is perhaps the main driver of VC’s interest in facial recognition in recent years: mobile biometrics. In the middle of the last decade, facial recognition technology was starting to become mainstream through mobile apps. In 2016, FacePhi, now one of the leading providers of selfie-based integration in the financial services industry, was starting to gain traction, as global giants like Mastercard and Samsung explored the use of facial recognition for user authentication and payment authorization. .

This activity would have already aroused the interest of Silicon Valley; and when Apple brought facial recognition to its iconic iPhone lineup at the end of 2017, it surely added fuel to the fire. The move has had a disproportionate impact on the mobile industry, prompting mobile competitors across the price range to seek out facial recognition solutions that can be implemented in their own devices. It’s impossible to say how much of a motivator for further investment in facial recognition, but it’s certainly no coincidence that the capital raised in fundraising rounds more than doubled between 2017 and 2018.

The impact of selfie biometrics may also help explain the decline in venture capital that occurred in 2019 as the development and implementation of these technologies in consumer smartphones began to normalize and become mainstream. And it would make sense for investment capital to decline further in 2020, when COVID-19 dramatically disrupted consumer technology supply chains and uncertainty for the economy at large.

Now, in 2021, it looks like investor interest is picking up again. Interest in the remote integration solutions that selfie biometrics can offer has intensified in the wake of the pandemic, with such activity having shifted – in some cases permanently, it seems – to online channels. At the same time, new applications of facial recognition technology are being explored, from physical access control to surveillance.

And the good news for startups and businesses even more established in this space is that funding comes from a myriad of sources. While some of the biggest investors have made bets in multiple funding rounds – four for the Alibaba Group, for example, and five each for Qualcomm Ventures and Venture Kick – a sample of the major funding rounds announced this year do not show. almost no overlap between the investors who led the rounds:

Company Principal Investors
AnyVision SoftBank, Eldridge
Paravision J2 companies
Keyless P101 SGR
In code DN Capital, 3L Capital
Jumio Partners of the Grande Colline
Connection identifier Fabrice Grinda, Will Wang Graylin, George Wallner, Damien Balsan
Alcatraz AI Ray stata

Risk factor

There is no denying that a remarkable amount of money is being invested in facial recognition, but as the technology has become more widespread, it has also brought to light a key risk factor that must be taken into consideration: the decline in ethical concerns. Activists associated with privacy, civil rights and racial justice have increasingly spoken of the threat of facial recognition technology when used intrusively – such as in identifying protesters with states – United – and in an oppressive way, as in China’s program of mass surveillance and detention against Uyghur Muslims in Xinjiang. There are also serious concerns about disparities in the accuracy of facial recognition systems across gender and race, leading to discriminatory results.

These are the kinds of concerns that have prompted Microsoft to refuse to sell its technology to law enforcement and to divest itself of AnyVision – even after an audit cleared it to be involved in mass surveillance in India. West Bank. And the aforementioned nefarious activities in Xinjiang have even placed some facial recognition companies on U.S. blacklists – including a company backed by Sequoia Capital, one of Silicon Valley’s most respected venture capital firms.

Some industry leaders have pushed for greater transparency in the industry and even for more government regulation in an attempt to alleviate these ethical concerns. And while there is undeniably an ethical imperative to addressing issues of privacy, civil rights, and racial bias, there is also a strong business case for it. Investors with deep pockets are clearly interested in facial recognition, and addressing the risks posed by the ethical issues facing the industry will only encourage further investment in the future.

July 20, 2021 – by Alex Perala

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