Startup based in San Mateo suspends operations
Acquisition deal prevented fund-raising for smart-lock company, then fell through
Just four months after unveiling its $699 digital door lock in August, San Mateo-based smart-lock startup Otto said on Tuesday it is suspending operations.
The decision to suspend operations came last month, after an unidentified public company backed away from acquiring Otto at the last minute, according to a lengthy post written by Otto CEO Sam Jadallah on the techcentric blog HackerNoon.
In the blog post titled “So Close,” Jadallah said the public company proposed acquiring Otto by Dec. 11. During the negotiation period, Otto was not allowed to solicit other bids or fund raise cash for the company.
But on Dec. 11, the company told Jadallah it would not complete the acquisition nor revisit the investment proposal.
“I was stunned,” wrote Jadallah. “We had extended our cash to get to the closing date, and now were left without alternatives. Rather than telling our dedicated team that we were accelerating our growth plans and their equity ownership might provide them some financial stability, I had to tell them we could not continue operations.”
Otto was a newcomer to the smart-lock scene, competing with established players such as Nest and August Home, which was recently acquired by Assa Abloy, the world’s largest lock manufacturer, in October. The Sweden-based August Home was seen as a director competitor to Otto despite its smart-lock models substantially less than Otto’s between $149 and $279.
Jadallah, a former Microsoft executive, sought to make a premium smart lock that was smaller and more secure than its competitors, with former Apple workers making up about 70 percent of its early employee count, according to TechCrunch in August.
With both Bluetooth and Wi-Fi radios inside a compact lock, the Otto lock
was designed to open by a finger touch whenever it senses an authorized phone within range, or with a mobile app or a four-digit passcode.
Outside observers were surprised and saddened to hear Otto’s failure despite its collective talent.
“The innovation cycles are happening so fast,” said Carlos Rodriguez, who works as an adviser to several startups, including those in hardware. Even when you have a worldclass team, (startups) don’t have the deep resources like a Samsung and Apple and Amazon do.”
Otto was also once seen as a darling among venture capitalists in Silicon Valley. Since its founding in 2013, Otto has raised more than $37 million in venture capital, with a significant investment from Greylock Partners — a venture capital firm that includes LinkedIn co-founder Reid Hoffman as a partner.
“They have redesigned the concept of a deadbolt lock from the ground up,” wrote John Lilly of Greylock Partners in August after the firm invested in Otto. “When I first met Otto founder Sam Jadallah and his team, I saw how much they cared about building a product that mattered.”
Greylock Partners declined to comment.
Jadallah announced that pre-orders will not be honored as the company suspends its operations, and that the company will revisit the possibility of reopening in the coming weeks.
“I’m so very saddened that we can’t deliver Otto, which was planned for first revenue in just four weeks,” said Jadallah.
In a separate interview with TechCrunch, Jadallah spoke more about the volatility in Silicon Valley, especially for new hardware startups.
“You’re not in charge of your own destiny, and the margin for error is a lot smaller,” said Jadallah. “Building a really exciting hardware product needs a ton of resources, and is probably best inside of a bigger company. Frankly, that’s part of the reason I was excited about the acquisition. I knew it would take us out of the cyclical venture capital market and put us inside a company that knew how to make and ship products.”
For Rodriguez, Otto’s story was a lesson for other hardware startups that are recently finding more difficulty finding success than in previous years.
“I thought the horsepower behind (Otto) was amazing,” said Rodriguez. “It’s not just that hardware is hard, it’s also really hard to forecast how much runway you need to take off.”