Business cloud software giant Workday has acquired Seattle-based Trusted Key in a deal that shows how the startup studio model is gaining traction.
Founded in 2016 by former executives at Microsoft and Oracle, Trusted Key developed a digital identity platform based on blockchain technology. The company spun out of Kernel Labs, a Seattle startup studio that creates new companies from scratch with a support system of financial, technical and administrative expertise. Kernel has quietly launched seven companies in the fields of machine learning, cybersecurity and virtual reality.
For Workday, the purchase is part of a broader plan to move work credentials — such as licenses, certifications and degrees — onto the blockchain, the distributed ledger technology that underlies bitcoin and other cryptocurrencies. Terms of the deal were not disclosed.
“While the world of work has been transformed by technology, credentials haven’t changed much — today, they’re still largely offline and paper-based, and verifying a credential often requires a lot of manual effort and time,” said Jon Ruggiero, senior vice president at Workday, in a blog post. “With our new platform, Workday wants to change that by bringing credentials into the digital age.”
The startup raised a $3 million seed round last year that was led by Founders’ Co-op, with participation from Pithia, a venture capital firm in Seattle that funds blockchain startups, among others. Most of the company’s engineering team already lives in the Bay Area and will work out of the Workday HQ in Pleasanton, Calif., as a result of the deal.
Trusted Key originally started inside Kernel Labs, led by former Microsoft and Symantec executive Amit Mital.
Prakash Sundaresan and Mital co-founded Trusted Key in 2016, later bringing on Amit Jasuja to run the startup as CEO. The idea behind the startup was to help companies in finance, healthcare, and other industries identify their users securely without the need for passwords.
Trusted Key has conducted a number of pilot projects with companies including Wells Fargo, AAA and the healthcare consortium H-ISAC. The decision to pursue a sale came down to the fact that many of the startup’s customers wanted the solution to be integrated into a larger business software system such as Workday, Mital said.
Startup studios gain traction
Kernel Labs is among a handful of Seattle startup studios proving out a new way to create and fund companies.
Others include Madrona Venture Labs (MVL), a studio from venture capital firm Madrona Venture Group, and Pioneer Square Labs (PSL), which has spun out 15 companies since launching in 2015.
“All of us are experimenting,” Mital told GeekWire in an interview. “We’re all basically saying this model can work, that it might work. But there was no real proof.”
Now there is proof. The acquisition of Trusted Key is the third sale of a Seattle company launched from a local startup studio. MightyAI, the first spinout from MVL, was scooped up by Uber last month. MessageYes, a spinout from MVL, was sold to Nordstrom in 2018.
Greg Gottesman, who helped launch both MVL and PSL, said the growth in studios is among the surest signs that the model is working. In the past five years, the number of studios has grown from 80 to more than 200, according to a report from Global Startup Studio Network.
Successful startups that began inside a studio include companies such as Dollar Shave Club, Hims, DogVacay, and others.
Gottesman said that cloud services have reduced the cost of starting new tech companies and allow studios to build and test ideas quickly. But that doesn’t mean a wave of new companies is inevitable: “The constraint is great entrepreneurial talent,” Gottesman said.
Before starting Kernel Labs, Mital was chief technology officer at Symantec and spent two decades at Microsoft, where he built teams for machine learning, computer vision and robotics. He often thought of becoming an entrepreneur — as do many Microsofties, according to a recent GeekWire analysis — but knew he would need help to launch a company.
“There were several times when I would have loved to leave and go do a startup,” Mital said. “And my hypothesis is that there are dozens, maybe hundreds of people like me stuck at these large companies like Microsoft, Amazon, Google or Facebook, who are a lot more talented than I am or was, and want to do exactly this, but don’t have all these pieces together.”
That’s the general theory that leaders at PSL and MVL also believe in — and they think Seattle is fertile ground for those would-be entrepreneurs, given the region’s robust tech industry.
“The amount of energy from people in Seattle right now is so above and beyond,” long-time Seattle entrepreneur Ben Elowitz said last year after joining MVL as managing director. “People have this aspiration to want to start a company.”
How Kernel Labs works
Kernel’s studio model supports founders with early-stage efforts like building a team, testing an idea and finding investors. In order for an idea to become a startup, the Kernel team must feel like it is “inevitable,” Mital said.
From there, the team determines whether the idea is feasible from a technical standpoint and then recruits a founder, who receives equity in the new venture. Kernel backs the company and brings in outside investors. The largest investors in Kernel are former VMware CEO Paul Maritz and Peter Neupert, who was the CEO of Drugstore.com and an executive at Microsoft. Madrona Venture Group also has a stake in Kernel.
“We started the studio model here in Seattle with MVL because we think there is an incredible amount of potential and creativity here in Seattle to build new businesses,” Matt McIlwain, managing director at Madrona Venture Group, said in an email. “We have invested in and work with all of the major studios here – MVL, PSL and Kernel Labs. Kernel and Amit have a unique focus that leverages some of the big innovation centers here in Seattle: AI, cyber and enterprise software.”
Kernel’s other startups include Occo, which makes a robotic camera for corporate events, as well as Omnivor, which is developing volumetric video technology that allows viewers to watch a scene from any angle. GeekWire got a peek at this technology in a volumetric video interview with Omnivor CEO Adam Kirk, who also serves as vice president of engineering at Kernel.
Mital’s faith in the studio model comes from watching the success of Bill Gross’ Idealab, which has launched more than 150 companies with 45 IPOs and acquisitions since 1996. Other top studios include Atomic, Betaworks, and Science.
He said he hopes the Trusted Key acquisition will give Seattle-area investors and entrepreneurs confidence that the studio model is an effective way to build new companies.
“Once this becomes a mainstream and accepted model, I think we will get dozens or hundreds of people in the larger tech companies willing to jump on board,” Mital said. “And that will do wonders for our ecosystem and make Seattle a much richer place for startups than it already is.”
Editor’s note: This story was updated to clarify that most Trusted Key employees are relocating to Workday HQ. The acquisition of MessageYes to Nordstrom was also noted.