It was a little over a year ago when we reported that Vancouver-based HootSuite, the platform that lets enterprises manage social media accounts, was raising a $50 million round at a $500 million valuation. Fast forward one year later it looks like investors are instead tripling down: HootSuite is today announcing a Series B round of funding of $165 million to take its business to the next level. This latest round — led by Insight Venture Partners with participation from Accel Partners and existing investor OMERS Ventures — is one of the biggest for a startup this year, and brings the total raised by HootSuite to date to nearly $187 million.
When it looked like the funding deal last year went quiet, I asked HootSuite’s CEO Ryan Holmes what was up, after he earlier didn’t deny the reports I’d heard. He told me that it was because the company decided didn’t need to raise the money at the time. Indeed, in a climate when other enterprise social media startups were getting snapped up by bigger players (Salesforce bought Buddy Media for $689 million; Oracle bought Vitrue for $300 million), HootSuite — a groundbreaker as one of the first “social media management” platforms for enterprises opening for business in 2008 — was expanding its platform to cover more social media networks and adding more clients. And it was already profitable.
Today, the company now has more than 7 million users in over 175 countries, including 237 of the Fortune 500 and big brand names like the WWF, PepsiCo, Virgin, Fox and Sony Music, and alongside a particularly close relationship with Twitter, one of its closest partners, it incorporates some 56 other social media services into its management platform, it noted last month, when it also noted that its revenues grew by 300% over the same quarter a year ago. And it wants now to take that into a higher gear. The plan will be to use the money to expand its operations globally — it now has over 300 employees worldwide — launch more products and add more sales and marketing. And maybe make a strategic acquisition or two.
Indeed, at a time when smaller startups full of talent and good ideas may be finding it hard to raise their next round of funding, HootSuite is shoring up as a big player in its own right. “As demonstrated by their remarkable growth and widespread adoption, HootSuite clearly leads the market in the development and delivery of a social relationship platform,” Jeff Lieberman, MD of Insight Venture Partners, noted in a statement. “Insight’s investment will help HootSuite capitalize on the global demand for their solutions, and accelerate the company’s pace of product innovation.” With this round of funding, Leiberman, along with Accel managing partner Ryan Sweeney and OMERS CEO John Ruffolo all join HootSuite’s board of directors.
The funding also underscores another trend that extends outside of the world of venture capital: it is a sign of how social media companies that have built themselves geared to paying enterprise users are seeing a lot of traction to their businesses.
“What’s become apparent is that social channels are also becoming THE manner in which small businesses through the Fortune 500 are opting to communicate with their customers and target markets. By every metric HootSuite’s social relationship platform is powering this evolution in corporate communications, and we are thrilled to now be their partner as they continue to scale,” noted Sweeney at Accel.
The deal, too, comes with a little bittersweet element: just a day before the funding got announced, HootSuite’s VP of partnerships and corporate development, Matt Switzer, sent out a message to shareholders from the Seesmic deal from last year, asking them to sell off their stakes to “clean up their cap table.” We’re embedding that note below, and it doesn’t look like anyone was being ordered to do anything, but in any case it’s a sign of how HootSuite is looking for bigger, greener pastures up ahead.
We’re speaking with CEO Ryan Holmes in a moment and will update this post with his comments after that.
Update: Some good comments from Holmes that draws together some of the pieces. Worth reading these…
What the funding does, Holmes says, is “take off some of the pressure” in HootSuite either going to an IPO or looking for a buyer. “We’re focused on building a great brand and great product,” he told me. “Both IPO or acquisition are possibilities and I’d never say no to either but I’m just working on building out a great product.”
He says that while HootSuite was profitable a year ago, “We’re running the company at cashflow neutral intentionally and this funding will add even more gas to the fire.”
The company operates a “freemium” model for its services — in that it has a free offering, as well as a paid one. Holmes says this continues to work well for HootSuite. “The shift to paid services from free, as we have been building up over the past several years, has worked,” he says. “We’ve been with a cohort of companies that prove that freemium works in enterprise. Companies like Evernote, Dropbox and Yammer and Survey Monkey are all helping that concept.”
Having said that, the proportion of paid to free users at HootSuite today is 96.5% free and the rest are paid. “But that 96.5% is a great asset,” he says. “We see a natural upgrade into our pro product. Over 50% of those were free users who wanted extended features and functionality.”
That doesn’t mean HootSuite isn’t looking elsewhere, too. “We’re very bullish on social advertising,” he says. This started with the company’s work as an ad API partner for Twitter, and will soon extend also to cover Facebook. This is also where HootSuite may be acquiring expertise, too. “We are looking at acquisitions in this space and it will be very beneficial for us,” he says. That should also include advertising analytics, just as essential in social media monitoring.
On the share sale noted below, Holmes says this: “When we did our Seesmic acquisition, it was a stock acquisition, and this is a secondary sale we’re offering. They’ve got a few days to make up their mind and decide whether to sell.”
Dear HootSuite (& former Seesmic) Shareholder,
Since the acquisition of Seesmic, HootSuite has continued to grow our platform and deliver on the promise of empowering the Social business. This past quarter we signed-up our 7 millionth user and onboarded our 320th employee. To support our continued growth, we are in the final stages of a large Series B financing. I wanted to reach out for a few reasons:
One of the goals of the financing is to clean up our cap table. To this end, we are allowing former Seesmic shareholders to liquidate their positions. At the current valuation, you will realize an almost 40% return in the 11 short months that you’ve been an investor. We would greatly appreciate your help by selling your stake.
Regardless and independent of whether you decide to sell, we are asking you to sign the shareholders resolution supporting the deal. You will find this in ‘HootSuite – Amalgamation Resolution’ which will be circulated by our legal advisors shortly.
Please keep this information confidential until we announce publicly and at that point, please ONLY reference our marketing announcement. If the media reaches out for comment, please put them in touch with firstname.lastname@example.org.
You will be receiving a package from our legal advisors which lays out details of the transaction and includes documents that require your signature. Given the tight timing we are looking to receive a signed copy of the resolution and all other docs back from you by 1pm PST on Wednesday August 7th.
Thank you for your continued support and for respecting the confidential nature of this communication.
If you have any questions, please don’t hesitate to ask.