Billing Software Startup Dials In $21M

Imagine a telecom startup that's profitable, has telecom customers, and plans acquisitions in a market where other players report double-digit annual growth -- all before its first funding round.

Hold your guffaws. Meet Broadmargin, a privately held supplier of "telecom cost management solutions," which says the funding it just scored is validation of its hot market (see Broadmargin Scores $21M).

Broadmargin's investors include ABS Capital Partners, which helped fund several telecom management firms, and Concert Capital Partners, which specializes in profitable startups.

Broadmargin supplies a combination of software and services that help carriers and enterprises get a handle on their phone bills -- and save some dough in the process. Service providers that rely on other carriers for interconnections are the natural targets for such wares, and they account for the majority of the company's $20 million-or-so annual revenue. Examples include the likes of Cingular Wireless, Equant (NYSE: ENT; Paris: EQU), and BellSouth Corp. (NYSE: BLS).

Broadmargin claims to help companies like these shave an average of 10 to 20 percent from phone bills annually. Using a methodology devised by the firm's consultants, along with actual software packages that automate the process of checking phone bills, Broadmargin finds billing errors and identifies ways corporate and carrier networks can make more efficient use of services or pricing plans.

Broadmargin is headed by Don Lynch, formerly a senior VP of local financial operations for MCI (Nasdaq: MCIT), who started Lynch Associates, a consulting firm with expertise in telecom billing and revenue management, in 1999. In 2000, his holding company also helped fund Broadmargin, an ASP (application service provider), which took net expense figures and provided online auditing as a service to paying clients.

In 2001, Broadmargin and Lynch Associates were merged under the Broadmargin name. Since then, about 80 percent of the company's business has been ASP and outsourcing services for carriers, using proprietary software and helping manage the task flow for customers. (Other revenues come from pure consulting or software-only sales.)

Broadmargin has 90 employees and is profitable and cash-flow positive, according to Glen Kazerman, the founder of Broadmargin ASP who is now head of Broadmargin's sales and marketing. So why is it only getting funding now?

Broadmargin wants to "accelerate product development, expand sales and marketing efforts, and pursue strategic acquisitions," according to its press release. Specifically, it wants to gobble up some smaller fry.

"We have a very unique opportunity to dominate this space," says Kazerman. Buying up some competitors is a key object in view.

Who are these would-be acquisitions? Prospects might include Teldata Control, a 250-employee firm founded in 1988; and MSS Group, with 185 employees, founded in 1993. Unlike Broadmargin, these companies focus primarily on enterprise customers, not service providers.

Teldata Control, for one, doesn't seem too eager. According to Joe Basili, VP of marketing, the company has been profitable since its founding and has grown 30 to 50 percent annually without any help. While management is looking at the possiblity of VC funding and has even considered some acquisitions, Teldata Control isn't in a rush. "We don't want to take on someone else's problems," Basili says. A company will need a range of special features to attract them to make or receive an offer they don't really need.

Isn't combining enterprise and service provider customers a no-brainer? Apparently not. Dana Tardelli of Aberdeen Group Inc., says the telecom cost management space is large enough to accommodate lots of players right now. Without a need for consolidation on financial grounds, he thinks the best market opportunities for Broadmargin and other companies lie in "offcenter" startups with technology that can add value to the main business. A good pick might be an outfit with "vendor management" software that automatically compares multiple phone bill analyses, for instance, to come up the best bargains for wireless or wireline services.

Whatever Broadmargin chooses to do, the size of its funding has attracted attention to the telecom expense management space -- where some interesting games are evidently afoot.

— Mary Jander, Senior Editor, Light Reading

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