Social media success story HootSuite wants to anchor Vancouver area tech boom

VANCOUVER – As Facebook prepares for its massive initial public offering, likely Friday, the booming social media market has also produced a breakthrough year for a Canadian company.

Vancouver-based HootSuite, which provides software for managing and analyzing a wide array of social media networks, is on track to double its user base and workforce in 2012, and may be approaching a value of $500 million.

Its CEO has visions of the company helping foster a community of web entrepreneurs that could turn the city into a high-tech investment hub.

The company is set to hit six million users by the end of the year, with a paid client list that includes the Prime Minister’s Office, The White House, and two-thirds of the Fortune 100 companies.

HootSuite — whose software allows users to control Twitter, Facebook, Google Plus and LinkedIn from one “dashboard” — had a workforce of 35 employees a year ago. That’s expected to soon reach 250.

In March, the company received $20 million in investments from OMERS Ventures, the venture capital arm of an Ontario pension fund, which marked one of the largest Canadian venture transactions in a decade.

Then earlier this month, TechCrunch, an influential Silicon Valley blog, reported that HootSuite is closing in on a $50-million round of investments from some of the largest social media companies, including Facebook and Google.

Ryan Holmes, HootSuite’s CEO, is calling these reports rumours, but confirms the company’s revenue run rate — an extrapolation that uses current financial results to forecast results over time — would make a $500-million valuation “fair for investors.”

“This will be one of the biggest years for our company ever,” says Holmes. “We have some pretty aggressive projections, and we’ve been beating those projections month after month.”

About 96 per cent of HootSuite’s users do not pay to use the program and have access to only the basic functionality.

But users can also pay for access to tools and data to analyze their social media impact and increase engagement with their audience. These enterprise packages start at $1,000 per month, with some large companies paying as much as $100,000 per month.

Holmes, born and raised in British Columbia, isn’t planning to sell any time soon. Though he’s had many offers along the way, his intention is to build HootSuite into a billion-dollar company, which could have a huge impact on Vancouver’s technology business community.

“There is a very Canadian phenomenon of selling early at a small valuation, and not going for the big-value, high-risk strategy,” says Thomas Hellmann, a professor at the University of British Columbia’s Sauder School of Business.

Hellmann has authored studies on the subject, including one that showed Alberta and British Columbia startups sold earlier on average than those from anywhere else in Canada or the United States.

This trend is well established in Vancouver, where a number of promising digital startups have sold quickly and moved to Silicon Valley, including Flickr, Zite and Summify.

But Holmes and a handful of other Vancouver entrepreneurs are trying to change that pattern, says Brent Holliday, a technology investment banker with Capital West Partners.

“What you find from [Holmes]… is the attitude of, ‘Screw that, we want to build the next RIM,’” Holliday says.

“You know, a massive, globally well-known company. And you can’t do that if you keep selling out your best innovations at $50 million.”

Comparisons to Research In Motion — which at its height had 20,000 employees and a value of $77 billion — remain far-fetched.

Still, HootSuite could potentially play the same role in Vancouver that RIM did in southern Ontario, an “anchor company” that fosters a community of smaller technology firms, Holliday says.

“The smart people get attracted to the big companies, and then they spin out and create new companies. That’s the whole lesson of Silicon Valley. And Vancouver has not had that.”

For his part, Holmes is explicit about his intention for HootSuite to become a legacy company for the community, such as PayPal became for San Francisco.

“You had a group of folks who were in early on PayPal, and when PayPal had its exit they all had massive upside. And as a group, they’ve continued to co-invest with each other, and they’ve funded some of the top web brands.

“I’d love to see a group (in Vancouver) with great consumer web chops, who understand all this web 2.0 development and experience, which our team is very heavy in.”

But HootSuite’s rapid growth also raises concerns about what happens when the social media market slows down.

“This is a symptom of the time,” says Hellmann about HootSuite’s value. “It is very clear that this is intimately linked to the hype around the Facebook IPO and a couple of other companies in the social media space that have reached astronomical valuations.”

The mobile photo-sharing application Instagram, for example, was recently purchased by Facebook for a staggering $1 billion.

The investors cited by TechCrunch in the rumoured $50-million HootSuite investment round include the giants of social media, such as Facebook, Twitter, and LinkedIn — the same companies that HootSuite builds its program to manage.

Hellmann cautions that investors may have to brace for the social media bubble bursting in the next few years.

Yet while many social media companies are faced with the difficult task of monetizing their millions of consumers who use the product for free, HootSuite can rely on a solid base of subscription-paying customers.

“Our enterprise [plans] start at a $1,000 per month and go north of there,” says Holmes.

HootSuite’s paid users also include McDonalds, The New York Times, Pepsi Co. and the U.S. Department of State.

“Instagram might have 40 million users, but they don’t have a revenue model,” says Holliday. “HootSuite’s six million users are worth a lot more to an acquirer.”