Verical launches online component market to defeat counterfeit chip fraud

Verical is launching an online market for buying and selling electronic components from legitimate suppliers. The market is an effort to combat the mushrooming problem of counterfeit chips.

Surveys have shown that there are so many counterfeit components on the market that as much as 15 percent of the chips the Department of Defense buys are fakes. And the fakes are getting so sophisticated that it can be hard to tell them apart from the real thing. Fake chips can include fake markings that are painted on top of lesser chips to make them seem like they’re more expensive components; or they can be electrically functional knock-offs made in chip factories that pirate the designs of other chip makers.

San Francisco-based Verical says now is a good time to start this market because the economic rebound is catching a lot of manufacturers off guard in their ability to meet global demand. The resulting shortages are forcing some buyers to turn to gray markets, or those that are halfway legitimate and halfway unauthorized. This Verical market gives both buyers and sellers a legitimate place to go.

The Verical Marketplace will use a pedigree scoring system to validate that authenticity of component parts available for buying and selling. The trade group IPC estimates that the market for electronic components — particularly, the submarket for parts that must be shipped in short order — is $22 billion. Of that, $12 billion is serviced by unauthorized distributors. And 13 percent of that amount is counterfeit, the IPC says.

Verical will make the secondary market more efficient and legitimate, where the goods are traceable. Since starting a beta test in January, Verical has drawn more than 3,200 buyers to its market. The goods include 27,000 different parts from 230 manufacturers, including big chip makers such as IDT, NXP Semiconductors and Texas Instruments.

Verical’s chief executive and co-founder is Josef Ruef, who has more than 16 years of experience in the secondary market. The company estimates that sellers can recover as much as 60 percent of the cost of their inventory by selling it on Verical. That’s about 10 times as much compared to the typical percentage recovered when liquidating inventory.

The company was founded in 2007 and has 20 employees. It has raised $6 million from Valhalla Partners. Competitors include consignment houses and secondary market resellers. Two competing markets are Freeflow and Semicentral. eBay is also a rival, to some degree, and secondary market distributors include Classic and Converge.

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