How John Frankel Fished a Deal from Reality Show “Shark Tank”
The search for potential investments has led the team at ff Venture Capital in New York into strange waters.
John Frankel, a partner with the firm, says he decided to back UniKey Technologies after hearing about its founder’s appearance last year on the television show “Shark Tank.” In spite of early misgivings about approaching an entrepreneur who was grilled on the air by the likes of Mark Cuban, Frankel saw an opportunity in UniKey’s smartphone technology for door locks.
One of ff Venture Capital’s limited-partner investors had asked him to take a look at UniKey. However, the company’s TV exploits drew an incredulous response from Frankel: “I said, ‘You’ve got to be kidding.’”
After closer scrutiny and a seed round, the relationship seems to be working for ff Venture Capital and UniKey. Late last week, UniKey announced that its Kevo electronic lock is coming to market thanks to a partnership with major door lock distributor Kwikset.
Frankel compared the smartphone-accessible Kevo lock to intelligent thermostats from Nest Labs in Palo Alto, CA, which are targeted at the growing smart home market. Though he discovered the company through atypical means, he says UniKey fits his firm’s interests. Many venture capitalists, he says, use location and industry to define the way they invest. “We believe those two parameters are suboptimal for generating returns,” Frankel says.
Instead, his firm looks at a broad mix of ideas and sectors and is not afraid to leave the city to meet startups it may want to back. “Though about 40 percent of our portfolio is in New York, that’s just happenstance,” he says.
That portfolio includes social influence metrics company Klout and crowdfunding platform Indiegogo, both based in San Francisco; photo community 500px in Toronto; and New York’s Moveline, whose platform helps people find moving companies. The flexibility at ff Venture apparently now includes hearing out an entrepreneur who endured a reality television show. “We like to invest in companies like UniKey that can build size and heft and come to dominate,” Frankel says.
UniKey—based in Winter Park, FL—developed the Kevo platform, whose software and hardware lets people use their smartphones or a key fob to control doors equipped with the electronic lock. Rather than a classic metal door key or keycard to gain access, a smartphone or fob puts out a signal that grants access when in close proximity.
Kevo is an opportunity, Frankel says, to put a digital answer to work on an analog problem. Controlling locks through software and near field communication (NFC) can be complex, though. The system has to be smart enough to react only when ordered to and not just whenever a fob or smartphone with the app are near. “You don’t want the door unlocking if you go to check when a stranger is at the door,” he says.
The platform can also be used to record who opens these locks, or to remotely ensure that the doors are locked. Use cases can include knowing what time kids return home from a night out, or giving a friend access to a vacation home. The digital keys can be tailored to grant individuals access only during specified times. That way visiting friends might have keys that only work for one week, Frankel says.
Kevo looks like an ordinary lock until someone with a fob or smartphone with the digital key approaches—that is when an LED ring around the lock lights up. The initial version had a more pronounced appearance; Frankel says an effort was made to make it more discreet and consumer-friendly.
That kind of control is, at a smaller scale, comparable to elaborate security systems found in some corporate offices. Kevo is not the same as installing a complex monitoring station, but it does have the potential to add a new way to access secure doors.
Helping an entrepreneur bring such a potentially disruptive product to the consumer market meant dealing with a plethora of “what ifs,” Frankel says. For instance, what if wireless phone signals are weak in that area, or the user does not have a smartphone? Frankel says UniKey CEO and founder Phil Dumas had unique intellectual property to respond to such questions.
While UniKey is not the norm in terms of where ff Venture Capital finds its prospects, Frankel says the company fit the profile of what his firm wants to see. He watches “Shark Tank” on a casual basis, and certainly not with the goal of finding potential deals. But after catching the episode with UniKey, he was pleasantly surprised. “Of all the companies I saw on the show, I believed this one might be investible,” he says.
Away from the glitz of television, there were real questions about how much money UniKey needed to raise and if it already had enough backers committed. “All the ‘sharks’ wanted to invest,” Frankel says. “Kevin O’Leary and Mark Cuban said they were going to invest.”
After contacting the company, it turned out that UniKey could not reach terms with Cuban and O’Leary. That gave Frankel some leeway to consider a deal alongside other investors. “The more I talked to Phil Dumas, the more I got a sense that this really was the sort of company that we could invest in,” he says. TV buzz aside, ff Venture vetted the company to get to know the team behind the idea. “Once we invest, we’ll be tied at the hip for the next decade,” Frankel says. Thus far UniKey has raised more than $2.4 million with an option for another $1 million.
The VC firm worked with UniKey on developing its strategy for the next three to five years. Dumas previously worked in biometrics, and Frankel saw that as asset to help the company open doors with distributors such as Kwikset. “His expertise and passion was different than a few hackers saying, ‘This is a good idea, let’s do an aftermarket product and then work out distribution,’” Frankel says.
As interesting as the Kevo lock sounds, he says, it was also important to make it “so simple that it doesn’t need an operating manual.” Connecting UniKey with lock distributor Kwikset, Frankel says, offered a fast way to get the product in front of mainstream consumers. Ideally they want Kevo on shelves at stores like Best Buy, Home Depot, Lowe’s, and the Apple Store, he says.
This all fits with a broader mission at ff Venture Capital, Frankel says, to back ideas that can change the behavior of large segments of the population. “The art to changing behavior is to make small changes,” he says. “Maybe in some future generations when people get comfortable with this, there will be no analog keys.”