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REVIEW SUMMARY
Company. CallMiner
Industry. Technology
Key. Money will flow to successful companies, even in an economic downturn.
When Microsoft released its Windows 7 last year, it turned to a small Fort Myers company called CallMiner to learn what its customers were saying about the new operating system.
You would expect a software giant such as Microsoft would know what its customers were calling about, but its well-publicized snafus with the previous Vista operating system revealed that it really didn't know.
To fix that, Microsoft hired CallMiner. It's in the business of analyzing recorded phone conversations using software it has developed. Large businesses such as Microsoft record hundreds of thousands of conversations on their toll-free call lines, but no one really listens to all of them. It takes one minute for CallMiner's software to analyze 36 hours of recorded conversations and it has mined 1.1 billion conversations since 2008.
CallMiner is so good at quickly figuring out what people are saying that the U.S. Central Intelligence Agency is one of its investors. That's no surprise if you're in the business of gathering intelligence about your enemies.
That kind of powerful technology has attracted private investors at a time when venture capital is at its most scarce in decades. CallMiner was one of a few Florida-based firms to raise venture capital this year, completing its third round of funding totaling $11.9 million. Altogether, CallMiner has raised $24.7 million from investors since founder Jeff Gallino started the company with $100,000 in savings in 2002.
“The reality is if you want to build massively successful companies in the tech space, you need more capital,” says Dan Rua, managing partner at Inflexion Partners, one of CallMiner's early investors. “In a market like this, there's a flight to quality.”
The company's success story, its leadership in the market and the seasoned management team were the three conditions to obtaining a third round of funding in such a challenging economy, says Terry Leahy, president and CEO of CallMiner.
And CallMiner is on the cusp of delivering analysis for large companies' entire spectra of communications, from phones to emails and social-media messages. Leahy says his mission is to get the company to $100 million in annual revenues.
Leahy declines to cite current revenues, but expects the firm to bring in $10 million a quarter within the next three to five years. “We double in size every year,” Leahy says.
Listen to this
Like Microsoft, CallMiner's customers tend to be large corporations that communicate with thousands of people by phone every day. They include banking giants HSBC and Santander and telecomm behemoths Verizon and Comcast.
CallMiner's skill is not just identifying specific words or phrases, but figuring the context in which they are said. For example, Microsoft needed to know within days of launching Windows 7 whether its operating system was functioning properly. Microsoft programmers needed detailed information on the root cause of any problem, a monstrously huge task when millions of people were upgrading their systems. “They used us to verify what they were hearing,” Leahy says. “Your customers are your most reliable source.”
While listening to your customers is hardly a novel concept for successful businesses, speech analytics is a budding industry and many large prospective customers don't budget for this kind of analysis. CallMiner's average deal is $327,000, Leahy says.
When Gallino started CallMiner in 2002, the first customer was Continental Airlines. Because it was soon after the terrorist attacks of 2001, Continental paid Gallino's $85,000 fee in frequent-flyer miles.
“My existing customers are my biggest and best prospects,” says Leahy. That's because companies like Microsoft start with a specific product or area of the business and expand over time.
But the interest in mining large volumes of customer conversations is growing. “At a company level, the first few years we were about establishing technical superiority in our category. We knew we were a little ahead of the market,” says Rua. “Our bet is paying off here in that everyone is issuing RFPs [requests for proposals] out so those phone calls don't go to waste.”
The opportunities lie beyond the U.S. and beyond speech analysis. For example, CallMiner has a team of programmers working on other languages such as Spanish and Chinese Mandarin and Cantonese.
Even within the English language, there are different accents and idioms. CallMiner has expanded with an office in the United Kingdom. “We have some huge customers over there,” Leahy says, pointing to London-based HSBC as one example. “They want bespoke. They want localized,” he said, referring to company's wanting the analysis in their local idioms.
Besides evolving the software into other languages, there are other forms of communications such as emails and social media that form the basis of customer interactions. “The next big wave is unified communications, bringing all that into one stream that can be analyzed,” says Leahy.
Path to capital
Capital has a way of finding its way to successful companies even in these tough times, and CallMiner is no exception.
“When we led the first round they had one customer,” recalls Rua. That first round raised $2.8 million and the second round raised $10 million.
In its most recent $11.9 million round, the fund that manages some of Florida's pension money invested $3 million. Hamilton Lane, the firm that manages The Florida Growth Fund on behalf of the Florida State Board of Administration, selects the most promising Florida-based growing companies in which to invest.
One of the investors in the most recent round of funding is a “strategic investor,” says Leahy, whom he declines to name or describe. Generally, a “strategic” investor might often be a larger company in the same industry that could be interested in acquiring it later.
While CallMiner has been successful so far, patience is required for investors to get a return on their money. “Because we're early stage investors, we have a long view on the deals that we back,” says Rua. “To do early stage venture capital right, you reserve for future rounds. You continue to partner along the way.”
For now, CallMiner may be an exception in Florida's barren venture-capital landscape. While venture investing is picking up across the country, it's too early to tell whether more of that money will make its way to Florida-based companies.
“The number of data points is too small to draw strong conclusions one way or another,” says Rua.
Entrepreneurs with potentially useful technology for the U.S. government may want to chat with The Company.
The U.S. Central Intelligence Agency has a venture-capital arm called In-Q-Tel. It funds promising technologies that might help protect the country against enemies.
Understandably, CallMiner President and CEO Terry Leahy will only acknowledge that In-Q-Tel is an investor in the Fort Myers-based speech analytics company. He won't say more; someone might be listening.
Chartered in 1999, the nonprofit In-Q-Tel was charged with bridging links with U.S. startup companies that can deliver useful technologies within three years. Surprisingly, 70% of the companies in which In-Q-Tel invests have never done business with the federal government.
So far, In-Q-Tel has invested in more than 150 companies and has provided 300 products for use by U.S. intelligence agencies.
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