Parature raises $16M for customer service software

After years dominated by lumbering giants like Peregrine Systems and BMC Remedy, the customer service market is ripe for innovation, say executives at a startup called Parature. The company bootstrapped itself for several years, but chief executive Duke Chung sees a coming “land grab” as more companies enter the field and start targeting the smaller customers who have traditionally been ignored.

In order to keep up with the competition, Parature has been raising substantial amounts of cash — a $13.5 million first round back in 2006, and now $16 million led by Accel Partners.

The Vienna, Va. company says that through its software-as-a-service model and multi-tenant server architecture (in which a single server is used by several companies at once), it’s able to provide customer support software at a much lower price than the competition, putting it within reach of smaller startups that would normally just use email and in-house solutions. That setup also allows Parature to deploy and update its product much more quickly than traditional companies.

The startup has been refining its core product for several years, which emphasizes the customer service “portal” it creates for each client. By creating an easy-to-navigate site where users can find the information they need, and where members of the community can help each other through forums, Parature “deflects” numerous requests, freeing customer service representatives to focus on longer-term issues like improving the portals.

(There are other startups trying innovative approaches to customer service too, such as Satisfaction, a San Francisco startup that allows consumers to drive the service process.)

Accel Partner Rich Wong describes Parature as a company with the potential to become “the Salesforce.com of customer service” — namely, the pioneer and leader in providing customer service through a SaaS model. He was also impressed that, unbeknownst to him, several Accel companies like Trulia and Coremetrics were already using Parature.

Parature’s background is in many ways a classic startup story. Its founders, who initially saw Parature as a way to deliver tutoring software, started the company in a Cornell dorm room. Although its early offering was little more than instant messaging software and service, Parature started building momentum early on; a division of Hewlett Packard was its 14th customer, and started paying before the team had left that dorm room.

That momentum has continued building — the Vienna, Va.-based company now boasts more than 650 customers and has helped served around 10 million customer service requests to date. Much of that demand comes from Linden Lab, the company behind the enormously popular virtual world Second Life.

The company was already pretty successful in 2006, when it had around 300 customers, Chung adds. But he and his cofounders realized that they were losing potential clients to the larger salesforce of competitor RightNow, and if they wanted to continue growing, they needed to bulk up Parature’s sales team too.

“We were losing deals because we weren’t at the table,” Chung says.

He says his long-term goal is to one day make a similar boast to McDonald’s — “I’d like to eventually be able to say we served 1 billion customers.” That’s a distance off, but it sounds like Parature could one day make that dream a reality.

Existing investors Sierra Ventures, Valhalla Partners and angel investor Ching-Ho Fung also participated in the new round.