Vancouver-based social-media-management company HootSuite has just raised an eye-popping $165 million during its Series B round.
The investment signifies a big vote of confidence in the business of making social-marketing software by a couple of investors who ought to know. Leading the round is Insight Venture Partners, an investor in Twitter and Tumblr, and participating is Accel Partners, an early investor in Facebook. (The third participant is OMERS Ventures, the investment arm of the Ontario Municipal Employees Retirement System. It invested $20 million in secondary funding in HootSuite last year, which let a group of employees and early investors cash out.)
HootSuite's core business is in licensing software for social-media listening and management to large marketers like PepsiCo, Virgin, Orange, Sony Music and HBO. Fees charged depend on the number of employees granted access. CEO Ryan Holmes said HootSuite is charging enterprise clients anywhere from five figures annually up to the high six figures. He said he's pursuing seven-figure deals where tens of thousands of employees within an organization would be using the software.
But HootSuite -- which has about 320 employees, up from 140 in March 2012 -- doesn't lack for competitors, running the gamut from the slickly marketed Salesforce Marketing Cloud, whose component parts include the former Radian6 and Buddy Media, to smaller, more niche startups like Spredfast.
HootSuite's announcement also comes on the heels of less auspicious news for another social-marketing startup with a Canadian founder. Syncapse -- a firm that was competitive with Buddy Media, Vitrue and Wildfire but didn't manage to find a Silicon Valley tech company buyer like they did -- filed for bankruptcy this week. It's notable as the first well capitalized social-marketing startup to go bust.
HootSuite is "cash flow neutral," according to a spokeswoman, with all profits being reinvested in the business. Mr. Holmes sees its "freemium" model -- where individuals can use the service for free to keep tabs of their various social feeds -- as a significant advantage over competitors. Over time, existing users have been converted to paying customers, and Mr. Holmes said that 50% of enterprise users once used the free version.
"This means we have a very low-friction way of onboarding enterprise users," he said, noting HootSuite's 7 million users. "This is a really unfair competitive advantage that we have."
Getting into the ad business
HootSuite also wants to get in on another crowded field: the social ads business. It's eventually opening up a new revenue stream through its selection as a Twitter Ads API partner; it was one of only five chosen when the program was announced in February. The partnership means HootSuite can build software on top of the Twitter ads platform to let brand clients test campaign-performance factors to gauge which ad creative works best and for which audiences, for example.
Mr. Holmes said HootSuite is slowly releasing its new Twitter ad-buying tool to enterprise clients, but it's not charging them yet. It's also working with Facebook to get approved as one of its many Ads API partners. To be determined is whether it charges a licensing fee, arranges to take a certain percentage from Facebook or Twitter for buys that exceed a certain amount, or charges a percentage on top of the ad units that marketers buy using its software.
The huge capital infusion will fund hiring and HootSuite's international expansion, Mr. Holmes said. (The company already has employees throughout Europe and in Australia and Hong Kong.) It could also potentially bankroll acquisitions of analytics and ad-tech companies. Finally, it intends to start doing marketing, which will be a company first.
"Users got on board with the product through word of mouth," he said.
Founded in 2008, HootSuite wasn't awash in cash at the beginning. It raised $1.9 million in 2009 from investors that included Blumberg Capital and then took on $3 million in debt bridge financing in 2011.