Hedge Funds Make Biometrics Bet

Farallon Capital Management and Och-Ziff Capital Management, two of the nation's top hedge funds, have decided to place a bet on Pay By Touch Solutions, a privately held maker of biometrics authentication technology.

Pay By Touch, a San Francisco-based company, enables shoppers to make secure payments by giving them access to their financial information by way of finger scans.

"We are thrilled to have major investments from two of the world's most respected hedge funds in this innovative financing," says Gus Spanos, executive vice president of Pay By Touch. Another hedge fund, Plainfield Asset Management, as well as a fourth one that wasn't identified, also participated in the financing. UBS Securities was the placement agent for the deal.

The total $130 million financing includes a $75 million senior secured notes deal and a $55 million offering of convertible promissory notes. The hedge funds participated only in the senior secured notes offering. However, the hedge funds also received warrants in the company, giving them some equity exposure

One of the key factors that made Pay By Touch an interesting investment is that it plans on going public.

"I don't think that an IPO 12 to 18 months from now is unreasonable," Spanos says. But aside from the potential to profit from an initial public offering, the hedge funds were probably influenced by the company's patents.

According to Steve Zellinger, general counsel at Pay By Touch, the company has 27 U.S. biometrics patents. Part of that portfolio, he says, covers technology that enables a customer to conduct financial, membership and age-verification transactions without having to carry cash, cards or checks.

Another set of patents deals with transactions such as check cashing. In other words, the company has the ability to cover substantial ground in the commercial-payments field.