Up until late July, it appeared that Alien Technology was on track to become the first RFID start-up to go public. In April, Alien, which makes RFID tags and readers, had announced that it hoped to raise close to $100 million by offering nine million shares to the public at $10 to $12 a share.

But after a two-week road show with investors, the company abruptly reversed course. Citing poor market conditions, Alien put the IPO on hold on July 28, leading some observers to wonder if there may be a sale in its future instead.

Insiders report that shortly after Alien scrapped plans for its IPO, rumors began to fly of imminent layoffs, budget tightening, a possible closure of Alien's manufacturing facility in Fargo, N.D., and even bankruptcy if Alien failed to raise more cash soon. Alien executives did not return calls requesting comment. To date, Alien has raised more than $200 million in venture funding, including a round of $66 million last year. Typically, venture capitalists cash in their investments in start-up companies in one of two ways: by selling the company when it becomes mature or offering shares to the public.

Alien has been selling its tags and readers at a deep discount in order to capture market share. Published reports have Alien losing about $1 for every $2 in revenue, and the firm reportedly has sold readers to Wal-Mart at $200 below cost. "The key challenge is that they continue to lose money on a daily basis," says Mike Liard, principal analyst for the RFID practice at ABI Research. "Certainly you gain market share early on, but can you sustain that business?"