Original source: https://www.bonfirevc.com/news/why-we-invested-in-telgorithms-tailor-made-solution-for-vertical-and-smb-saas-vendors

Earlier this month I connected with Aaron Alter, the founder and CEO of Telgorithm, at a Bonfire cocktail party. Out of the gate, I got the feeling Aaron was a bit of an introvert, but when the conversation turned to what he was building, that all changed. The passion, knowledge, and pure enthusiasm he had when speaking about cloud communication platforms and compliance-based messaging was certainly not what I was expecting. It wasn’t your typical cocktail conversation, but by the end of it, everyone around him was buying what he was selling. It was without a doubt the sort of thing you look for when getting behind a new founder.

Bonfire recently led a Seed round for Telgorithm where they raised $3.8 million with participation from Daher Capital, Amplify.LA, and I2BF. This capital will allow the tech startup to expand its current compliance messaging platform for SMB/Vertical SaaS Providers to include a cloud-based voice communications platform.

I was curious to learn more, so I sat down with co-founder and Managing Director of Bonfire Ventures, Jim Andelman, to discuss what drew him to Telgorithm’s solution and why investments in SaaS companies that are solving pain points for SMB’s are on the rise.

Deb: Let's start with an easy one. What is Telgorithm?

Jim: Telgorithm is an API-based offering that developers use to integrate messaging into their applications. Unlike incumbent providers that are horizontal and undifferentiated, Telgorithm’s service is tailor-made for the vertical SaaS provider and SMB ISV (Independent Software Vendor). That's our edge - We are a better, stronger messaging platform for the Boulevards, the ChowNows, the Emotives, the Appfolios, and the ServiceTitans of the world.

Deb: What’s the near-term opportunity for Telgorithm?

Jim: Use-cases for compliance-ready messaging continue to rise.  On a recent business trip, for example, I received text messages from my hotel, the airline, restaurants, ridesharing services, a weather app, and even a ski resort (it was a fun business trip!). Behind all of those messages are “applications” that send a message to a “person”.    

Before this year, an application could send a text message just like you and I send text messages: to anyone at any time. But recently, to improve accountability and reduce spam and scam messages, regulations went into effect that require “applications” sending messages to “humans” to adhere to a set of requirements called “Application to Person”, or A2P. To comply with A2P, every sender must register with a platform created by the telco industry called the Campaign Registry. If you are United Airlines for example, and you have an application that sends messages to your customers, A2P applies to you.  Since United Airlines is a brand and therefore a single entity, they would only have to register once and they would be considered compliant.

Now, imagine you are AthenaHealth and you have tens of thousands of medical practices that all need to send messages using your system, each in their own name. Every single medical practice using this messaging system has to be in the Campaign Registry to be A2P compliant.  

Incumbent software solutions don’t have an easy way for their customers (the software vendors) to do this, so the near-term opportunity is an optimized version of what exists now, built for vertical and SMB SaaS vendors.  Other key features, like message throughput and deliverability, are also key benefits of the Telgorithm solution over incumbents for SMB SaaS vendors.

‍Deb: Vertical SaaS is a core part of Bonfire’s investment focus. How much did that play into your investment decision?

Jim: From an investment perspective, we find Telgorithm’s offer very compelling. Every single business vertical that exists is going to have software/cloud solutions that are tailor-made for them, and there’s no reason that every one of those software vendors shouldn't be using Telgorithm.

Now, a particular aspect that is interesting about our investment and the service I just described is that it’s merely Telgorithm’s wedge product. The product they're planning to build this year, and what we believe will be even more compelling, is a fully embeddable phone system that can be part of the vertical SaaS solution.

This phone system can be built into the Boulevards, ChowNows and the ServiceTitans of the world, to enable these businesses to offer an entirely new product, which also makes their existing products more valuable to their customers.

‍Deb: Can you tell me more about this upcoming product and who the team is that’s building it?

‍Jim: Let’s take a few steps back and break it down a bit. Every brick-and-mortar business still has a landline phone so people can reach them at their physical location. It’s a necessary evil to ensure locations can be reached by their customers. However, this landline isn't connected to any of the businesses applications and is and isolated island of functionality.

The Telgorithm team - Aaron Alter as CEO, Mason Zheng as COO and Yury Semerikov as CTO - all worked together at ServiceTitan where they built a product called ServiceTitan Phones Pro, which is an embedded phone system inside ServiceTitan. So when you buy ServiceTitan, you not only get business management software, employee scheduling, communications, and CRM, you also get a phone system that is integrated with all that other stuff. This means when someone dials in, it connects to the CRM module and their profile pops up. You now know exactly who is calling before you pick up the phone and the conversation gets automatically logged in the CRM. If there is a work order that needs to be created based on that conversation, it can be done in real-time on that same screen. This embeddable phone system, which was very successful at ServiceTitan, is what the team at Telgorithm is planning to build this year. We are essentially making a seed investment in a messaging product and a pre-seed investment in a phone product.

‍Deb: Wow, this is very interesting. Can you expand more on why you connected with the team and their mission?

Jim: They left ServiceTitan to build that product for everyone, and here are the things we love about that.

1. The team has worked together and experienced success together before with a very similar product. It is the extreme version of relevant domain expertise..
2. The team knows software and they've built the exact thing they plan to go build for the type of customer that they want to target.
3. Aaron lives, eats, and breathes telephony. In fact, his very first job was in a Verizon store. He's had exposure to most aspects of the telecom industry and is super passionate about it.

‍Deb: As part of our due diligence at Bonfire, we like to speak to a few customers before investing. What did Telgorithm’s customers have to say?

Jim: We have received confirmation through our conversations with customers that there is an overload of headaches the incumbent solutions impose upon software vendors, and Telgorithm relieves them all.

One particular issue these SMB SaaS vendors face is volume constraints. Existing providers currently limit the volume of messages you can send per second or per minute (called rate-limiting). Once a business scales and grows, this limit is often exceeded, causing service degradation and increased costs.

Another issue is deliverability. Vertical SaaS vendors who were having deliverability issues with their current systems saw their concerns dissipate when they switched over to Telgorithm.

When we introduced them to representative customers like Boulevard, the response was,

"This is super cool. I've never seen another company offer this kind of solution and I don't think I can get this kind of product from anyone else. It's a no-brainer to include in our solution as an upsell or cross-sell."

We believe that there are lots of those types of vertical SaaS customers and there are going to be lots more.

‍Deb: Was there anything else that really stuck out when you spoke to their customers?

Jim: You know, there was just this incredibly strong customer advocacy. Each customer we talked to felt like the team at Telgorithm was an extension of their own team. They could call Telgorithm at any time for anything. This sort of customer service is an ideal way to start a business and it's a wonderful cultural mindset, especially now. These founders are maniacally focused on delivering value for their customers, and it shows clearly in the work they do for their customers.

I apply the same framework to every investment opportunity. Here are some questions I ask when considering an SMB SaaS investment:

1. Is the market opportunity compelling?
2. Are the founders compelling?
3. Is there strong founder/market fit?

One of our Firestarters, Mandy Howard, worked at ServiceTitan and worked with this team. When I asked her if this is a team she would not only back, but vouch for their integrity and fit for the vertical SaaS business they’re building, she unequivocally said yes on all accounts.

‍Deb:  Telgorithm is based in Greater Los Angeles. How do you think that impacts their growth and performance?

Jim: LA is probably the very best market for SMB vertical SaaS because it's a massive market and there are so many small businesses here. The environment is conducive to growth and innovation; a true breeding ground for vertical SaaS companies. You can build a big business focusing on a single geography, mastering a certain area before expanding outward.

We're seeing that play out for SMB and vertical SaaS companies like AppFolio, MindBody, Boulevard, ChowNow, Procore, ServiceTitan, SimplePractice, Ziprecruiter, Kareo, Patientpop, Emotive, et cetera.  

Based here in Greater Los Angeles, Telgorithm is exactly where it should be to build a strong market leader.