Surprise! The Startups Are Back

By Fred Vogelstein

November 24, 2003:In the clubby world of Silicon Valley venture capitalists, Michael Moritz is as good as they come. He and his firm, Sequoia Capital, played a leading role in financing Flextronics, Yahoo, Google, and PayPal, to name a few. So when he and Sequoia organized a $22 million round of investment in a three-year-old startup called 24/7 Customer last summer, the news attracted a lot of attention.

24/7 caters to U.S. corporations' love affair with outsourcing operations to India. Despite competition from big, established Indian players like Wipro, Infosys, and Tata Consulting, 24/7 has assembled an impressive list of blue-chip customers, including two of the top five credit card banks, one of the top three overnight couriers, one of the biggest software companies, and one of the largest ATM manufacturers. (Outsourcing American jobs to India has become controversial in Washington, so while 24/7 executives told FORTUNE who the company's big customers are, they did so only on the condition that we not print their names. Trust us when we say the list is impressive, though.)

The company was founded in 2000 by Shanmugam Nagarajan and P.V. Kannan, who had started and sold a customer-relationship-management software company for $140 million in the 1990s, and Sudhakar Kosaraju, a former Jupiter Communications analyst. Unlike its Indian rivals, which specialize in software development, 24/7 has staked out the much more prosaic field of customer service and technical support—it routes customer calls via the Internet to India and answers them there. Managing phone banks generally drives CIOs nuts. Operators' computers frequently go down, and they are typically not savvy enough to fix glitches themselves. Supporting such operations eats up oodles of IT staff time. 24/7 eliminates this headache, and its software also enables customers to monitor how their contract reps in India are doing.

America's race to outsource has made 24/7 thrive: Sales are running about $30 million a year, with pretax profits approaching $5 million. Kannan expects growth to stay strong, in part because he sees outsourcing as more than a cost-cutting fad. 24/7 believes it can offer better quality service than exists in the U.S., where customer-service jobs rank just above burger-flipping in terms of pay and status. In India they are considered solid, middle-class jobs that attract college graduates, Kannan says. That may explain why 24/7 also attracts smart VCs.