Momentum Builds for Startup Nok Nok's Authentication Tech

Security software startup Nok Nok Labs has acquired the funding and is now hiring the developers it says can help it achieve its goal of reforming logins for applications such as online and mobile banking -- from user names and passwords to more sophisticated, biometric methods of authentication such as fingerprints and facial recognition.

The company raised a $15 million Series A round of funding in February 2013 and is rapidly hiring engineers and marketing people.

"We have kind of a nomad sense of adventure here," says Phil Dunkelberger, president and chief executive of Nok Nok Labs and the founder of the data security vendor PGP Corp. "The other part of that is it's a low-maintenance culture with people who are self-motivated and self-driven. I want people that don't just work at startups but have been with startups that have scaled to some level."

Right now there are more than 50 developers and product employees working on Nok Nok's authentication software.

The company (named for an authentication process that verifies who's there at both the server and device) will eventually sell server and device software intended to make the process of verifying the identity of online and mobile bank customers easier and more effective. The company released its developer tool kit in March.

Nok Nok is using a protocol created by the FIDO Alliance, short for Fast IDentity Online, that lets applications, browsers and servers speak the same language for authentication. According to members of the alliance, Nok Nok is the first company to turn the standard into working code. (FIDO is being backed by some heavy hitters — PayPal and Lenovo among them.) That's an advantage that makes Nok Nok attractive to investors.

"I have done quite a few investments in the security space, and the user authentication issue is an extremely difficult problem to solve on a broad basis," says David Lane of ONSET Ventures, which led Nok Nok's seed round of investment. "It's a friction in the internet that is slowing down adoption of many types of web services, including payments, things of that nature that use the internet as the backbone."

Indeed, he asserts, the username and password is broken.

Nok Nok is trying to tie together smartphones, tablets, computers, banks and others in a way that will allow third-party programmers to use its software as a way to become compliant with FIDO's protocol.

"This is a big picture," says Carl Amdahl of DCM, which manages roughly $2 billion across seven different funds. DCM invested an undisclosed amount in Nok Nok as a part of the company's first round. Amdahl sits on Nok Nok's board.

"It is a challenging sector to make money in, because it's a sector that is in consolidation. Traditionally big companies play dominant roles, while smaller companies introduce technology" and get acquired, says Amdahl. "What makes Nok Nok different is that it's not a point solution. It's not a new fingerprint reader. It's not a new way of doing a face photo as authentication. It's really the deployment of a new infrastructure."

In 2011, Ramesh Kesanupalli conceived of Nok Nok. He's a FIDO Alliance board member and the former CTO of an authentication software company Validity — a direct competitor to Authentic, which was acquired by Apple last year. In September 2011, Dunkelberger came on board initially as Nok Nok's CTO, assembling a group that came up with the business plan that the company took to investors. He describes meetings that took place on weekends in burger joints and diners around the Bay Area.

"I was trying to do the due diligence to raise money to go in front of the venture firms and say this was the business plan," says Dunkelberger. "Eventually [we] molded together a fundable business plan with big infrastructure players."

Today the company's software is in tests, some of them lasting as long as several years cutting across as many as three companies and including millions of users.

This is the third in a series of six profiles of promising fintech startups.

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