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Did Wattpad really need to raise so much money?

Wattpad CEO and co-founder Allen Lau
Wattpad CEO and co-founder Allen Lau
Wattpad CEO and co-founder Allen Lau

Earlier this week, Wattpad, the Toronto social publishing platform, closed a $46 million Series C round of funding, led by OMERS Ventures, with participation from August Capital, Raine Ventures and Northleaf Venture Catalyst Fund.

In addition to the new investors, this round represented something of a reunion, with all of Wattpad’s existing investors returning, including Union Square Ventures, Khosla Ventures, Jerry Yang of AME Cloud Ventures, Golden Venture Partners, and Boris Wertz of Version One Ventures.

Wattpad boasts 25-million unique visitors per month. With half its traffic already coming from outside North America, the company intends to use the new investment to expand its global reach. It clearly has momentum; Wattpad is the number-one app in the Philippines and 10% of its overall traffic comes looking for Spanish-language content. The company says it plans to use part of the proceeds move to a larger office space in downtown Toronto at the end of April and to expand its 70-strong staff.

“We’ve grown 200% since this time last year and tens of thousands of people join the Wattpad community each day,” said CEO and co-founder Allen Lau. “We’re on-track to become one of the most successful consumer Internet companies in the world. With this latest investment we’ll continue to build a Toronto company that has global impact.”

It became apparent that additional capital could be used to accelerate the company’s growth globally and hence further solidify its market position as the “YouTube” of writing.

Compared to Hootsuite’s relatively recent $165-million raise, or even Desire2Learn’s $80-million financing in 2012, Wattpad’s third fundraising round might not stir much attention. But in the longer picture of Canadian tech financings it is a tidy sum, especially considering that this brings the total amount the company has raised to $66.5-million. Wattpad raised a $17.3 million Series B back in June 2012 and $3.5M in Series A funding in September of 2011.

For a business that would seem to be inherently light in the cap-ex department, a question that might emerge about Wattpad’s recent round is “why so much?” Although Lau has in the past insisted Wattpad is unique and “doesn’t really have any competition”, there is a potential elephant in the room in the form of Amazon’s self-publishing platform, although that venture has bounced around in focus since launching in 2009, and it remains unclear what form Amazon’s interest in self-publishing will ultimately take.

Then there’s FanFiction, which boasts more than 2-million registered users, but appears to have lost a considerable amount of momentum nearly two-decades after it was launched. Wattpad and FanFiction, the class of the space, are trailed by a host of smaller or more regionalized players.

OMERS Ventures Managing Director Jim Orlando, who led the fund’s interest in Wattpad, says they were a small investor in previous rounds and this financing enabled the firm to be as involved as they had hoped to be, while Wattpad can use the cash to distance itself from any would-be competitors.

Wattpad now has a clear edge over would-be pure-play rivals, if you accept the idea that Amazon doesn’t want into the space, or might just be happy to acquire Wattpad if it did want in.

“This gave us an ability to work with the management team in a collaborative way to understand the source of (its) user growth, the increase in user engagement, and the overall size of the market opportunity,” he says. “It became apparent that additional capital could be used to accelerate the company’s growth globally and hence further solidify its market position as the “YouTube” of writing.”

The Wattpad experience is unique. Budding writers can instantly publish their work using the Wattpad app from their own tablets or smartphones. What makes Wattpad different, however, is that it is as much a social network as a publishing platform. Users comment on each others’ stories, making for a collaborative community-based approach to storytelling. Writers also tend to upload their stories one chapter at a time, in serial form, much the way fiction was published when Charles Dickens was alive and working.

Anyone can set up a profile and start publishing immediately, regardless of experience, which has made for an interesting mix of talent, ranging from Margaret Atwood to complete unknowns, several of whom have leveraged the platform to land themselves real-world book deals.

Wattpad founder Lau’s stated goal, as echoed by OMERS’ Orlando, has been for the platform to become the “Youtube of publishing”, creating a virtual town square with room for a billion storytellers. With Youtube users uploading 100 hours of video every minute, Wattpad has some catching up to do, but now has a clear edge over would-be pure-play rivals, if you accept the idea that Amazon doesn’t want into the space, or might just be happy to acquire Wattpad if it did want in.

Lau has also noted that he plans to explore new avenues for monetization of Wattpad, including branded content and native advertising.

Is Wattpad sticky? Well, its new investors have really taken to kicking the tires on their new investment, with August Capital’s Tripp Jones going so far as to take a crack at lightly fictionalizing an episode from his own life, in which he shouts at Mark Cuban on the TV show Shark Tank, in a piece entitled “Amateurs!”, uploaded by his firm’s fictional alias September Capital.

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