Facial Recognition Startups: VC Funding Despite Controversy

The Resilience of the Facial Recognition Industry

Despite increasing regulatory efforts by states and municipalities aimed at limiting the application of facial recognition technology, recent investment trends indicate a thriving startup sector. This suggests the industry is far from faltering.

Controversies and Concerns Surrounding Facial Recognition

Facial recognition represents a particularly contentious and intricate area of policy debate. The technology possesses the capability to monitor individual movements and activities, finding application within both public sector entities and private businesses, such as retail establishments.

However, documented inaccuracies and biases within facial recognition systems – particularly regarding the misidentification of individuals from non-white ethnic groups – have raised significant concerns. These algorithmic flaws have led to wrongful accusations and disproportionately impacted communities of color, prompting privacy advocates to question the storage and utilization of such sensitive biometric data.

Corporate Responses to Public Pressure

Facing the potential for comprehensive federal legislation, major players in the facial recognition market, including Amazon, IBM, and Microsoft, have announced the cessation of sales to law enforcement agencies. This move was intended to address concerns voiced by investors, customers, and employees protesting the technology’s deployment by U.S. government and immigration authorities.

Growing Legislative Restrictions

The resistance to facial recognition has continued to gain momentum. Since the beginning of the year, Maine, Massachusetts, and Minneapolis have enacted legislation restricting or prohibiting its use, building upon similar actions taken by numerous other cities and states. Further legislation is currently under consideration in locations like New York.

A Surge in Venture Capital Funding

Concurrently, investors have channeled hundreds of millions of dollars into facial recognition startups. Data compiled by FindBiometrics reveals a substantial increase in venture funding, exceeding $500 million in 2021, compared to $622 million for the entirety of 2020.

Significant Investment in Key Startups

Approximately half of this $500 million influx is attributable to a single startup. AnyVision, an Israel-based company, secured $235 million in Series C funding from SoftBank’s Vision Fund 2. Their facial recognition technology is utilized in venues such as schools, stadiums, casinos, and retail stores, with Macy’s being a notable client employing the technology for shoplifter detection.

This funding represents a significant increase from the previous year, when Microsoft publicly withdrew its investment in AnyVision following an investigation led by former U.S. Attorney General Eric Holder regarding allegations of the startup’s technology being used for surveillance in the West Bank.

Funding for Controversial Companies

Paravision, a company previously embroiled in controversy over accusations of utilizing facial recognition on users without their consent, received $23 million in a funding round spearheaded by J2 Ventures.

Clearview AI, a highly controversial startup facing multiple government investigations and class-action lawsuits for allegedly scraping billions of profile photos from social media platforms, recently confirmed raising $30 million from investors who requested anonymity – identified as “institutional investors and private family offices.” This indicates a cautious awareness of the risks associated with publicly associating with the technology.

A Persistent Market Demand

Despite the varied applications and clientele, a substantial market for facial recognition technology remains.

Exceptions and Competitive Landscape

Many municipalities with facial recognition bans include exceptions for specific circumstances or broad exemptions for private businesses. Furthermore, the exclusion of China-based companies like Hikvision and Dahua, linked to human rights concerns, and other blacklisted startups has reduced competition in key U.S. markets, particularly within the government sector.

Investor Emphasis on Ethical Considerations

As scrutiny of facial recognition intensifies, investors are increasingly urging companies to prioritize responsible technology development and prevent misuse.

Calls for Ethical Development

In June, a coalition of 50 investors representing over $4.5 trillion in assets issued a call to action for facial recognition companies, including Amazon, Facebook, Alibaba, and Huawei, to adopt ethical development practices.

The statement emphasized that while offering benefits, technologies like facial recognition can potentially infringe upon fundamental rights and require responsible design and implementation.

Future-Proofing Against Regulatory Changes

Beyond ethical concerns, investors are also seeking to safeguard the industry against future political and regulatory challenges. In April, the European Union’s data protection authority advocated for a ban on facial recognition in public spaces across the bloc.

The statement highlighted the need to address the widening gap between technological innovation and human rights protection, emphasizing the urgency of considering the implications of expanding surveillance technologies.