Boulder's MinuteKey Draws $10.6M in Funding, Ready to Hire 20 PeopleOctober 03, 2011
Denver Business Journal
by Greg Avery
MinuteKey Inc., a Boulder company that’s turning key copying into a convenience handled by its vending machines, has attracted $10.6 million in private equity funding — and is hiring to handle expected growth.
MinuteKey projects adding as many as 20 software developers and other workers within six months as it places its automated key-duplication machines into more stores.
“There’s 600 million keys cut in America every year. It’s an amazing opportunity,” said CEO Randall Fagundo. “Everybody’s got keys in their pocket.”
MinuteKey estimates U.S. consumers spend $2 billion annually on key copying. Yet key duplication has changed little in decades. Hardware stores still hand cut duplicate keys for customers, or they’ve turned to cutting machines operated by a person.
The business opportunity presented by MinuteKey’s 800-pound, automated key-copying machines attracted a $10.6 million investment from San Francisco-based Serent Capital and Boston-based Matrix Partners , which earlier had invested in the company.
MinuteKey has 40 employees, most of them in Boulder but some at its offices in Woodland Hills, Calif., where MinuteKey was founded in 2008.
It can expand better in Boulder than in California because of the wider availability of software talent here, Fagundo said.
The company has 100 MinuteKey machines operating in 15 states, mostly in big-box stores. They’re in two Lowes hardware stores in Aurora, and one is inside the Wal-Mart store off West Colfax Avenue and Federal Boulevard in Denver.
MinuteKey aims to eventually have more than 20,000 machines operating in the United States.
MinuteKey’s founders, Dani and Ari Freeman, brothers who live in California, stumbled on the idea that most retailers find key duplication problematic.
It requires having a trained employee available to offer the service, and the volume and pricing make it hard to turn a profit. But, as an add-on service, it brings in foot traffic.
The brothers invented a machine capable of copying house or office keys, choosing the right key weight and cutting the metal more precisely than hand-cut keys.
Customers firmly insert their key to be copied into a small slot, choose how many keys the machine should make, pick the design on the duplicates and then pay by credit card. Making a triple set of keys takes less than three minutes.
MinuteKey offers to place its machines in stores and share revenue with the retailer. Having a box onsite still draws some foot traffic for the service, and also turns key duplication from an expense into a small profit stream for stores.
This is familiar territory for Fagundo.
He co-founded a Boulder-based company, American Coin Merchandising, in the 1980s that put coin-operated games — mainly the cranes that grab for plush toys — inside grocery stores and other major retailers such as Wal-Mart. American Coin went public in 1985.
Fagundo was CEO of the company when Coinstar bought it in 2004 for $235 million. He stayed with Coinstar into 2008.
Fagundo became MinuteKey’s CEO in 2010. He finds MinuteKey’s business of putting vending machines in stores similar to American Coin Merchandising.
“It’s a lot of the same retailer base,” Fagundo said.
But MinuteKey machines accept only credit and debit cards, which minimizes theft that plagues coin-operated machines. MinuteKey boxes also can alert the company to malfunctions, and most of what’s likely to go wrong with a machine can be fixed remotely via computer, Fagundo said.
MinuteKey had some difficulty getting the attention of venture capital companies, because its business model of combining vending machines, high technology and retail didn’t fit their normal focus.
“This is a physical machine that makes revenue,” said Mike DeGrandis, MinuteKey’s CFO. “A lot of VCs don’t know what to make of that.”
The business also plans eventually to borrow against its cash flow to fund expansion, something most VCs rarely encounter.
Its latest funding should last well into 2012, Fagundo said. By then, the company will have more experience operating the business and removing uncertainties, making it easier to borrow money or find other sources of capital to grow, he said.