IT firm rakes in VC cash: Interactions Corp. has raised $35M since 2002 inception

A fast-growing Carmel startup is using a blend of innovative software and human guides to answer questions over the phone.
The company could have located on either coast, but instead chose Carmel’s Clay Terrace.

And the company, Interactions Corp., has raised more than twice as much money as ChaCha Search
Inc., a higher-profile startup in a similar business that’s also housed in Clay Terrace.

"We’re after a big idea here to change
a big chunk of the world," said Interactions CEO Michael Cloran, whose firm has grown to 110 employees.

Last week, Interactions signed a $12 million
venture capital deal with out-of-state investors. With the new money, Interactions now has raised $35
million since its launch in 2002. Two-year-old ChaCha, which provides free text-message answers to cell-phone
queries, so far has raised $16 million.

Cloran, 40, is an Indiana University graduate who started his career as a consultant in Anderson. Next, he built then sold
a successful Chicago-based Internet service provider. After a three-year stint working for the ISP’s acquirer, Cloran decided
to take another crack at entrepreneurship.

One of Cloran’s backers now is Bob Currey, CEO of Mattoon, Ill.-based Consolidated Communications Inc., the purchaser of Cloran’s
ISP.

"He’s swinging
for the fences," Currey said. "And there’s a good opportunity for him to hit it out of the park."

Cloran had an epiphany while taking a shower
that led him to launch Interactions. Because he was between ventures, he wasn’t employing a personal
assistant to manage his calendar and transfer calls to his cell phone.

Cloran figured a company could make a lot of money if it could virtually replicate the services
of a personal assistant at a fraction of the human cost.

But fully automating an assistant was a tall order. The best systems on the market still allow
only simplistic queries. And as anyone who’s endured endlessly repeating keywords like "credit card"
over the phone to an automated operator can attest, it’s hard to get much business done.

"The guys in voice recognition are always
promising [automated operators will soon replace humans]," Cloran said. "But it’s always five
years away. And I guarantee five years from now, it’ll still be five years away."

Rather than attempting to reinvent voice recognition, Cloran chose to build a new system using
technology that’s already available. For Interactions, the key is breaking up telephone queries into
tiny pieces and sharing the work among a large group of people.

Cloran likens his approach to Henry Ford’s assembly line, which made modern auto manufacturing
possible. Today, he said, most company call centers still use a pre-industrial approach to their work.
Individual agents go through extensive training as preparation for a wide variety of inquiries. They
handle calls one at a time, and are generally overseen in small groups. Supervisors’ main job is to take
over when agents can’t satisfy irate callers.

"Would you want a handmade engine in your car today?" Cloran asked. "No."

The company does use voice recognition, but
combines it with a human touch. Interactions’ software breaks the calls into slivers, then routs them
to human analysts whose job is to gauge a call’s purpose.

The analysts sit before computers and hear dozens of call fragments every minute. Two analysts
must agree on an answer the system responds to a caller, most often with a recorded response.

Like Ford’s assembly line, Cloran said, the
process uses more people. But the analysts are so focused on a tiny link in the chain that they can handle
far greater volume. The result, he said, is a system that provides faster and more accurate responses
at a cost that’s as much as 40 percent cheaper than a traditional call center.

Big potential?

Interactions officials say their potential market is huge, since any company that interacts with
the public needs a call center.

Neil Singer, chief information officer of Atlanta-based Allconnect Inc., is a true believer.

His company bundles and resells home services,
such as utilities, high-speed Internet, cable television and telephone service. It signed on as one of
Interactions’ first customers, and this year it will use the company’s system on a larger scale.

Singer said Allconnect has reduced its caller hold
time to "practically zero" even as it reduced call center expenses.

"Working with interactions has allowed us to provide service at a better price point,"
Singer said. "If you want to save people from [interactive voice response] hell, Interactions is
a great compromise."

One of the strengths of Interactions’ system is that it provides "upselling" opportunities for its users, said Richard
Fox, managing director of Radner, Pa.-based Cross Atlantic Capital Partners, one of the startup’s investors.

For example, he said, callers to a pizza company
using the system would automatically be asked if they want breadsticks, salad or a two-liter of soda.

"This is clearly to us the next generation
of voice response. It is such a different user feel. A lot of people who use it don’t even realize they’re
speaking to an automated voice," Fox said.

"We think this company can become a very large company because the need is so great and the market
is so large."

Firm
lured here

Interactions
was founded in New Jersey. But the Indiana Economic Development Corp. lured it here in 2006. Last year, IEDC
awarded Interactions a $2 million grant from the Indiana 21st Century Research and Technology Fund.

The company is using the grant to build a second
product that’s similar to its call center system. Called HeyOtto, it uses the same blend of human beings
and software to make conference calls easier and more efficient.

Bruce Kidd, IEDC’s director of small business and entrepreneurship, became convinced Interactions
is for real after he formed a focus group of six local CEOs running companies with $50 million to $100
million in annual revenue.

Cloran demonstrated Interactions’ system to the group without any advance explanation about his company.

"To a person, they said when it’s available,
we will use it and buy it, because it’s awesome," Kidd said.