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HootSuite’s Cautionary Tale: Remember the fate of Guelph’s Geosign

The Geosign story is now remembered as a spectacular flameout. But does the same fate await Ryan Holmes and HootSuite? Not likely.

The Geosign story is now remembered as a spectacular flameout. But does the same fate await Ryan Holmes and HootSuite? Not likely.Vancouver-based HootSuite isn’t the first Canadian tech company to raise $160-million or more, but the company should heed the lesson of the last one to do so.

A little more than a year ago, the Vancouver-based social media brand manager raised $20 million through OMERS Equity, which at the time seemed like a big deal, with CEO Ryan Holmes musing openly about building a $1 billion dollar company in his adopted city. He said at that time that the funding would be used mainly to buy back stock from early investors for, as he phrased it, “a bigger win”.

And now HootSuite has raised eyebrows –and $165 million- in Series B funding, one of the largest rounds of venture capital fundraising in North America this year and the largest ever in Canada. It begs the question, who was the previous record holder?

That honor belonged to Guelph-based Geosign, a company that in March 2007 snagged $160-million from Maryland-based private equity firm American Capital Strategies, on the strength of its keyword arbitrage ad-placement service.

“We are excited to partner with American Capital as we move at an accelerated pace through our next growth phase,” Geosign president Ted Hastings said at the time. And grow they did. The company soon had 230 employees. But by January 2008 it had to let them all go and fold its operations, with nothing left to their name but a handful of urls. What went wrong? Google.

Google more than definitely knows HootSuite exists and tacitly approves the role they play as peacekeeper in the midst of hostilities between the existing social media players

Every once in a while, Google takes a look at user practices and decides to weed out people who’ve figured out how to jig the page-ranking system (these updates are now called “Penguin” or “Panda” and are increasingly hard to spot). Once Google has seen your game and decided it doesn’t care for how you play, $160 million might as well be $10. You’re toast.

The Geosign story is now remembered as a spectacular flameout. But does the same fate await HootSuite? Not likely.

In the first place, Google more than definitely knows HootSuite exists and tacitly approves the role they play as peacekeeper in the midst of hostilities between the existing social media players. Speaking on Bloomberg TV, Holmes positioned his company as the social media equivalent of Switzerland, in a nod to the various warring factions that the major players in social media have become.

HootSuite investor Ryan Sweeney: “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."
HootSuite investor Ryan Sweeney: “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.”

Holmes has almost always talked down the notion that HootSuite was simply building towards an exit or an IPO, keeping the company both privately held and headquartered in Vancouver. The massive cash injection seems to indicate that the company is quite capable of growth through private fundraising, rather than pushing towards an exit, a strategy employed by many start-ups.

When Google started, the search engine market was dominated by AltaVista and Yahoo, as well as more niche players like Dogpile. And the social landscape was populated by AOL and Friendster, territory now effectively occupied by the big social networks. The good news for HootSuite is that Google is less successful at killing companies that it directly targets than those it simply destroys by rejigging its own algorithm slightly. Google has just announced plans to squash Yelp by launching a “City Expert” program. Somehow, it’s seems that they will be successful putting Yelp out of business than they were with Geosign.

HootSuite, meanwhile, has multiplied its staff from 35 to over 300 in the space of two years, and moved into a large new office space in a deal worked out with the city of Vancouver, while opening branch offices in Tokyo, San Francisco, New York, Hong Kong, London and Sydney, with an eye towards expansion in Latin America. Its client roster counts 237 of the Fortune 500 companies, including PepsiCo, Orange, Virgin, Sony Music and Telus, along with 7 million individual users of its mostly free social media dashboard service.

San Francisco-based Blumberg Capital invested in HootSuite in 2009, and are talking up the rewards of being an early investor. “This is a significant milestone and a triple win,” said Blumberg Managing Partner, David J. Blumberg. “First, our investors will receive over 52 times their investment. Second, this massive return validates our strategy of ‘Leading the Seed’ financings in early-stage, highly promising, and innovative software companies. Third, we welcome our new co-investors as the Company grows to even greater levels of success in improving the efficiency and effectiveness of Social Media for enterprises and consumers.”

In 2013, largely due to the new swagger of HootSuite and some of its contemporaries, a Canadian-grown, locally realized software giant no longer seems like a fantasy, but an inevitability.

While this announcement may have some readers spitting coffee or shaking their heads in amazement, the scale of the investment makes sense in light of the fact that HootSuite was one of five initial Twitter Ads API partners, allowed to plug ads directly into the platform, which meant they were well placed to reap the benefit of the booming increase in Twitter’s ad revenue, which some peg as high as $1 billion. The company plans to engage Facebook’s Ad Exchange later this year.

Another of the company’s high profile investors explained why the company is uniquely positioned.

“As the first institutional investor and largest pre-IPO owner in Facebook, we have long believed in the inevitable relevance of social networks and social media at the consumer level,” said Ryan Sweeney, Managing Partner of Accel Partners. “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.”

In 2013, largely due to the new swagger of HootSuite and some of its contemporaries, a Canadian-grown, locally realized software giant no longer seems like a fantasy, but an inevitability. HootSuite has employed a tactical march to grab land that brings to mind the best strategies of “Game of Thrones”. The company should remember, but not be intimidated by, the predictable fate of its fallen comrade Geosign, who picked a fight with a much bigger enemy and lost.

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