Product-Tracking Idea Lures Investors

Bar codes, the ubiquitous identifier of a wide variety of products, are due for an upgrade, and Matrics Inc. plans to announce today that it raised $14 million to provide it.

Bar codes, originally developed in the 1950s but not commercially deployed until 1973, have remained relatively unchanged since then: a simple grouping of white and black lines encoding an identification number. Their greatest liability has been the difficulty in reading their stored information -- the tag has to be adjacent to a bar code reader.

Matrics's technology solves that problem by replacing the standard visual bar code with a passive radio transmitter about the size of the letter "o" in this word. The transmitter is then inlaid into a plastic sticker with an antenna and affixed to whatever needs to be tracked.

The technology was masterminded by William Bandy and Michael Arneson, two former scientists at the National Security Agency. They left the agency in 1998 and founded Matrics the next year. An initial $3 million in seed funding followed, raised from the Venturehouse Group and Piyush Sodha, who became the company's chief executive in October. He replaced Laura Neuman, a former executive at CAIS Internet, who ran the company during its early start-up phase.

Sodha, a former manager of three other area start-ups and an early-stage investor, first learned of the company through fellow seed-stage financier Mark Ein of Venturehouse. Sodha was brought in as chief executive as the company continued to grow from just two scientists to a staff of more than 20.

The tiny radio transmitters Matrics has developed are smaller than those made by competitors -- and thus only about half as expensive at 50 cents each -- and have a range approaching 15 feet, compared with six feet for other versions. Sodha also said that the receiver and software developed by Matrics can scan almost 1,000 tags per second. Those were the important advances -- price, range and speed -- that helped entice investors.

"Until Matrics actually developed their technology, there hadn't been a very large market as the result of primarily prohibitive high costs," said Andrea Kaufman of Novak Biddle Venture Partners, the Bethesda firm that led the round of funding. "Matrics has broken down those barriers."

Directly affixed to products, the Matrics tags require no internal battery. Power is provided by the receiving stations that track the movement of each transmitter. The receivers provide the data to a management software package Matrics has also developed.

Next month the company plans to embark on a pilot program, distributing its transmitters to a handful of potential customers in three industry sectors that will be the company's focus: industrial inventory, retail and document management.

"The pilots will teach us a lot," Sodha said, but he declined to identify the program participants.

The goal of this funding round, which along with Ein's Venturehouse Group and Novak Biddle included the Carlyle Group and Polaris Venture Partners, was to raise less than $10 million, but investor interest was greater.

"It was one of those rare things," Ein said. "We were dramatically oversubscribed."

That allowed Sodha to pick and choose among investors with the hope of assembling the best possible team.

"The focus was on quality venture capitalists," he said.

Brooke Coburn of the Carlyle Group and Jack Biddle of Novak Biddle will be joining the company's board with this round of funding, though Kaufman will likely replace Biddle in the next six months. Ein has been a member from previous rounds.

According to Sodha and his backers, this round should finance the company for up to 18 months as Matrics completes product testing and expands its sales and marketing efforts. Product development will not stop entirely. Sodha hopes to work on a second generation of the transmitter that should both decrease its size and increase its range.

"You're always evolving the product a little bit," he said.

He hopes to sell enough of the transmitters -- about 30 million a year -- to make the company profitable in early to mid-2003. And although he does not rule out the possibility of more outside financing, he does not expect any additional funding needs to be large. "If there is a round, it will not be a huge round," Sodha said.

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