IPO Proves There’s Not Much Profit in Urban Surveillance

ShotSpotter incoming data from its sensors around the world. ShotSpotter

Here’s some cold comfort for the Tinfoil Hat Brigade: surveillance of the real world has been a lousy line of business.

Founded in 2001, California’s ShotSpotter may be the most recognized brand in automated police surveillance. It makes the detection systems that use acoustic recognition to locate gunfire, directing police to the scene. Law enforcement agencies in Birmingham, Chicago, Washington, Oakland and San Francisco have subscribed to use the company’s service.

New York adopted the technology in 2015, as we previously reported, and Columbia University agreed in March to let the NYPD install gunfire sensors on campus, as The Daily News reported.

When a shot is fired in range of one of its outdoor devices, the police are usually alerted digitally within 45 seconds. That report comes with location information, number of shots fired, situational information and perhaps even the shooter’s direction of movement. It’s a technically impressive product, but not a profitable one.

“We have posted a net loss in each year since inception,” ShotSpotter admits in a filing before the SEC. Despite is failure to attain positive returns, the surveillance company hopes it can turn its prospects around with an initial public offering. It seeks to raise $35 million, according to Seeking Alpha. That number is roughly equal to the amount of liabilities on its balance sheet, more than half of which are short-term. The company’s total assets are also valued at half of its total liabilities.

“To date, substantially all of our revenues have been derived from contracts with local governments and their agencies, in particular the police departments of major cities in the United States. To a lesser extent, we also generate revenues from federal agencies, foreign governments and higher education institutions,” the filing explains.

Naturally, government contracts can take forever to set up. The Silicon Valley-based firm also faces additional risk from federal funding streams. The filing confesses that many of its contracts hold the agencies harmless if funding from D.C. dries up.

ShotSpotter further acknowledges that it makes a controversial product, and the tide of public opinion could turn solidly enough against it never turns a profit.

In order to overcome its headwinds, ShotSpotter seeks this public investment in order to expand its sales operation. It seems lots of potential selling to more college campuses as well as in markets abroad.

It also wants to fund further research. The company reports:

“We believe that integrating our solutions with other tools and technologies enhances the value of our solutions to our customers. For example, our solutions can be used in connection with computer-aided dispatch systems, video surveillance cameras, National Integrated Ballistic Information Network (NIBIN) and automated license plate readers used by law enforcement to improve the effectiveness of police response and investigation efforts.”

ShotSpotter’s IPO is the biggest news in private sector surveillance since the stun gun company Taser became Axon, announcing a pivot to monetizing data from police body cameras, as The Intercept reported. The two developments could be signs of a larger trend toward increased integration of public sensors. ShotSpotter has already successfully integrated its technology into smart lighting from General Electric.

San Diego will install sensors on thousands of streetlights under a partnership with GE this year, as Fortune reported, capable of detecting vehicle speeds, estimate crowd sizes and—yes—spot gunshots.

The S-1 further treats active shooter scenarios as a business opportunity, and Europe’s many extremist attacks might also have created possible upside sales potential.

“We believe that we have the potential to expand our coverage within South Africa and to pursue opportunities in Europe, South America and other regions of the world,” the filing reports.

Attorney General Jeff Sessions meets with police chiefs from across the country. Mark Wilson/Getty Images

Its management could hope that under the decidedly pro-cop Justice Department led by Attorney General Jeff Sessions, federal funds could flow more liberally to local police departments. That’s a big “if” in the unpredictable present. Phrases like “political environment” or “political changes” appear 14 times throughout the document, largely under headings that concern risk.

“We have focused on rapidly growing our business and believe that its future growth is dependent on many factors, including our ability to increase our customer base, expand the coverage of our solutions among our existing customers, increase sales of our security solutions and expand our international presence,” the company promises. “Our future growth will primarily depend on the market acceptance for gunshot detection solutions.”

It may not quite be make or break time for ShotSpotter, but 16 years of losses makes for an easy pick if the question is sell or buy.