TD Fall Investing GuideTD Fall Investing Guide
http://www.canadianbusiness.com (© Rogers Digital Media 2013, All Rights Reserved.)
Updated: Fri, 11 Jan 2013 12:05:10 GMT | By Trevor Melanson

Is Hootsuite Canada's next tech titan?

Ryan Holmes could make it so.


Photos: Kamil Bialous; Set Decoration and Prop Styling: Angie Martin/THEY Representation; Wardrobe Styling: Sarah Danniels/THEY Representation; Props courtesy of Folkart Interiors; Mountain Equipment Co-op; Nineteen Ten Home Boutique

Photos: Kamil Bialous; Set Decoration and Prop Styling: Angie Martin/THEY Representation; Wardrobe Styling: Sarah Danniels/THEY Representation; Props courtesy of Folkart Interiors; Mountain Equipment Co-op; Nineteen Ten Home Boutique

If you didn't know him well enough, you might think Ryan Holmes was your typical West Coaster. The 37-year-old CEO of HootSuite, a rapidly growing social-media company out of Vancouver, certainly looks the part. He often wears plaid to work. He keeps the top button undone. His hair is getting pretty long and his beard-well, he has one. He also loves yoga and all things outdoors, from surfing to rock climbing. Then there's his office, where he sits at his desk on a big, grey exercise ball, often while his 10-year-old dog, Mika, gnaws on a bone across the room. But make no mistake about it: Holmes is one of the most serious entrepreneurs in Canada, as paradoxically intense as he is laid back. He just doesn't waste time on formalities.

His company doesn't waste time either. In January 2010, HootSuite was valued at $6 million, while in March another round of funding pegged it at $200 million. Now speculation exists that it could actually be worth well over twice that. According to HootSuite's human-resources department, the company hires five to 10 new people every week, and its total headcount is around 250. This rapid growth can be attributed to the company's rising reputation abroad. Its social-media dashboard, a tool for connecting multiple social networks, is now used by 79 of the Fortune 100 (America's largest companies), the White House, the Prime Minister's Office and a slew of media organizations. In all, HootSuite currently boasts more than five million users, and its website often ranks among the 200 most popular in the world.

But for Canadians, what's perhaps most interesting is Holmes's unique pledge for a startup entrepreneur: he's gone on the record vowing to build a billion-dollar company north of the 49th parallel. Canada's tech industry is plagued with problems, not the least of which is a tendency for our startups to sell early or license their technology to foreign-based, usually American companies. There are countless examples. Some are high-profile, like popular photo-sharing website Flickr going to Yahoo in 2005. Others are talent grabs, such as Summify's joining Twitter last January. (Twitter moved the operation to San Francisco and discontinued Summify's application.)

The thing is, our companies are risk-averse-13% more so than American ones, according to a recent Deloitte study. Last year, 76% of Canadian software company CEOs told PricewaterhouseCoopers they planned either to be acquired or to merge. Only 4% said an initial public offering was their endgame. This wasn't always the case. At its peak, telecom manufacturer Nortel Networks comprised more than a third of the Toronto Stock Exchange's total market value. Then it crashed. Now it's bankrupt. Following the bust, venture capital funding dropped off a cliff.

Indeed, despite being among the heaviest web users in the world, our Internet economy is now smaller than the G20 average. All of which makes HootSuite, a web company bent on being a global brand worth a billion dollars, exceptional.

With Research In Motion falling from favour, things look bleak for our nation's tech industry, but there is hope. Technology mid-caps CGI Group of Montreal and Macdonald Dettwiler & Associates of Richmond, B.C., made strategic international acquisitions earlier this year that will jack up their revenues by billions of dollars. And HootSuite isn't the only promising young startup in Canada. To boot, new venture capital funds, growth initiatives and a decentralizing tech sector are providing grounds for optimism. In fact, a recent ranking of the top 20 "startup ecosystems" by research company Startup Genome listed three Canadian cities (Toronto ranked eighth, Vancouver, ninth and Waterloo, 16th).

In short, Canada is brimming with potential. It's a great place to start a tech company. That, however, isn't enough. What it needs to become is a great place to grow one, too.

One of the biggest hurdles to growing Canada's tech sector is attracting and retaining seasoned executives who know how to spur that growth. Large companies attract talent to the city in which they're located, creating a better ecosystem for the local tech sector. It's what happened with Waterloo, Ont., thanks to Research In Motion, in Ottawa thanks to Nortel. It's one of the reasons Canada's strong startup scene isn't translating into a mature tech industry: we need more anchor companies.

A lot therefore rests on hot prospects like HootSuite to get the ball rolling. The firm's new vice-president of marketing, for example, came from Adobe and previously worked at Yahoo and Microsoft. The good news, according to Holmes, is that it's getting easier to build tech companies outside of Silicon Valley. "We're seeing a massive decentralization of startups," he says, with more and more meetings and deals occurring online instead of in person. His company is not at all dependent on local partnerships, he explains. "Our partners are Twitter, Facebook, LinkedIn, Google and others. I work with them."

Indeed, it's those four companies that give HootSuite relevance. The company's social media dashboard can link Facebook, Twitter, LinkedIn and Google+ profiles together under one account, allowing users to send out single messages across multiple platforms. HootSuite uses a freemium model, meaning your typical John Doe-95% of its user base-pays nothing but can connect only five social profiles. More serious users can upgrade to a premium account with expanded features, including the ability to manage as many profiles as they want, for $10 per month. There are also enterprise accounts targeted at companies, offering comprehensive analytics and team support, ranging in price from $1,000 a month to around $100,000. Holmes says the company, which is profitable, earns about the same from both revenue streams.

Last January, HootSuite reported an annual run rate of $11 million. Holmes says that number has since more than doubled-in his opinion, high enough to justify a valuation over $500 million. A half-a-billion projection was floated back in June when popular Silicon Valley blog TechCrunch reported the company may be closing in on a $50-million round of funding.

The lofty valuation comes in part because companies like HootSuite, surfing the social media wave, have been getting acquired ravenously of late. Most recently, social marketing company Buddy Media was bought for $689 million by Salesforce.com, which also snatched up a similar, New Brunswick-based firm called Radian6 for $326 million in 2011. In fact, Salesforce has acquired a total of four Canadian startups in just over two years.

Such an outcome is not something Holmes has ruled out. His goal, specifically, is to build a billion-dollar company in Canada, but once he reaches that milestone, what happens next is anyone's guess. Brent Holliday, a partner at Vancouver-based Capital West Partners, says Holmes is cagey about his intentions. After all, everyone has a price. "Honestly, somebody comes and offers you a stupid number, you tend to pay attention," says Holliday, who thinks the company may already be big enough to go public on the Nasdaq exchange. "I want him to go public and become a very big company, a couple thousand employees, because that's what we need-we need a big anchor company that's a global player."

In truth, Canada needs multiple anchor companies. Only a handful of big tech names-IBM, Microsoft, Intel-have maintained their prominence for as little as 25 years. Apple, currently the world's most valuable public company, nearly flamed out in the 1990s. But when they're hot, these firms do their countries a lot of good. The talent they retain and help create, in part by training people how to run a big international company, seeps further into the economy, often in the form of spinoff companies. Additionally, profits get redistributed to local research and development, universities and other initiatives. Consider all the money RIM co-founder Mike Lazaridis has donated to the University of Waterloo ($123 million) or to the Perimeter Institute for Theoretical Physics, which he helped launch ($150 million). Anchor companies tend to share the wealth mostly at home. They also bolster a nation's brand abroad.

Whether or not Hootsuite can reach this level amounts to wild speculation. Holmes has never built a company bigger than the one he runs now. Then again, he's got a stronger business background than did, say, Facebook's Mark Zuckerberg.

Ryan Holmes HootSuite

Ryan Holmes HootSuite

A lack of senior talent isn't Canada's only problem. Another common gripe among Canadian startups is an inability to score growth capital. When Allen Lau, CEO of Toronto-based e-book community Wattpad, went looking to raise money in 2011, he had very little luck in his home country. "Almost as a necessity at the time, I had to go south," he says. When he did, he scored big, raising $17.3 million of mostly American money.

Since then, however, Lau thinks financing prospects in Canada have improved, in part thanks to OMERS Ventures, a venture capital arm of the Ontario Municipal Employees Retirement System that was set up late last year. OMERS has been doling out serious growth capital. Last March, it gave HootSuite $20 million, which HootSuite used to buy back stock from its early investors-"to align for a bigger win," Holmes says. OMERS also handed out $20 million to research firm Vision Critical, $16 million to online retailer BuildDirect, $12 million to Wave Accounting, and seed money to a handful of smaller startups. And in September, OMERS co-led a massive $80-million round of funding for Kitchener-based Desire2Learn, a provider of educational software. The $180-million fund defines itself as a life-cycle investor, meaning it will stick with companies for years, participating in each round of funding. In short, OMERS is the sort of fund we need more of. Another is Montreal-based iNovia Capital, which raised $110 million for its third fund in December 2011, $10 million of that coming from Alberta Enterprise, an Alberta government-funded corporation formed in 2008 that gives money to VC funds. Now, a similar strategy appears to be in the works at a federal level. In March, the Conservative government pledged to put $400 million into VC funds.

Another obstacle that's diminishing is distance. Cloud computing is making location less important for smaller companies, which is especially good news for a country as geographically vast as ours. It means companies can tap into talent 3,000 kilometres away. Empire Avenue, a small social-media startup that's headquartered in Edmonton but based in, well, everywhere, is a perfect example. "All of us are scattered across the country," says Empire Avenue CEO Duleepa Wijayawardhana. "We run the company remotely." The Internet has made everything easier for them, he says, from running the company to finding investors. "We don't always have to be down in Silicon Valley," he explains. "We can meet these people online." It's a sentiment echoed by Ryan Holmes, who points to AngelList, a site that allows entrepreneurs to sell their ideas to investors online. It used to be you had to fly down to California, but not anymore. Holmes is convinced "the next hot startups are going to be all over the place."

For Holmes, entrepreneurship has always been a way of life. He started his first business, a paintball company, in high school, and his second, a Vernon, B.C.-based pizza-by-the-slice joint called Growlies, in lieu of finishing his last year of business school at the University of Victoria. Eventually, he sold the restaurant and moved to Vancouver, where he spent a winter learning how to code. He put together a portfolio and got a job at a dot-com, which in 2000 "dot-bombed," he says. That's when he started his own digital services agency, Invoke Media, out of which HootSuite was born in 2008. HootSuite spun off as an independent company in December 2009, raised $1.9 million and continued its exponential growth, eclipsing Invoke.

Eventually, Holmes needed to build an executive team for his burgeoning new company. One of the roles he took off his plate was HR, for which he hired a director named Ambrosia Humphrey, who asked him to come up with some core values for HootSuite. "It seemed like such a fluffy exercise, but I went through it anyway," Holmes says, "and coming out of it realized there was a huge benefit." When your workforce gets into the triple digits, it becomes harder to keep people on the same page, he explains. The values he settled on were hard work, hustle and entrepreneurialism.

Indeed, employees at HootSuite work long hours, but while they work hard, they also play hard. Every Friday they open a keg in the office, and company events and retreats are a regular thing. Holmes always comes out. He wants his company to be open and casual. "You work really hard, but you can be doing it in your pajamas if you want," Humphrey explains. The attitude at HootSuite certainly appeals to a certain type of worker. The average age at the company is 28, most of them live in Vancouver's more affordable east side and, last she checked, 85% cycle to work. The pay at HootSuite is on the low side for an IT firm, Holmes says (though they all have stock options), but he sort of prefers it that way. "People who are overly financially focused aren't visionary enough," he argues. And for Holmes, vision is crucial.

While promising young companies like HootSuite inspire new hope, Canada's tech industry still lies in the shadow of fallen titans. Few have forgotten Nortel's stock crash. In 2008, at RIM's peak, it was worth $84 billion. Now, it sits around $6 billion. HootSuite will need to stay on its toes. Online habits change quickly, and HootSuite can't afford to miss a beat. It does have competition, Twitter's own social-media dashboard, TweetDeck, being perhaps the most notable. But TweetDeck only supports Twitter and Facebook and provides no analytics. So HootSuite remains in a good position.

The company just opened an office in London and will move into a new, 33,000-square-foot headquarters leased from the City of Vancouver (which has recently become mindful of retaining strategic head offices) in 2013. If it can keep growing and stay independent, the benefits for Canada, and especially Vancouver, could be significant.

Boris Wertz, founder of GrowLab, a Vancouver-based startup accelerator, thinks the company has a great opportunity to grow, though he's not convinced it's worth half a billion, at least not yet. "I love Ryan. He's good at internal PR, let's put it that way," Wertz says. Of course, that's a good quality in a CEO. Any company that's going to make it big needs a visionary leader, someone who can rally the troops, he says.

That may be especially true in the tech industry, where no one's future is secure for very long. Where expectations change every few months. And in Canada where, so far, every titan has fallen.

NO, HELL! WE WON’T SELL!
Canadian tech leaders who have pledged to go big and stay home

Issac Raichyk
Keek,CEO

Issac Raichyk

Issac Raichyk, who at 63 is probably the oldest high-tech startup founder you'll ever meet, insists he'll keep Keek, a Twitter-like social network for sharing short videos, headquartered in Toronto. He says investors often ask him whether or not he'll move his company to Silicon Valley, but he believes Canada's largest city has its own strengths. "Obviously, the Valley has a huge pool of talent, and you can share a latte with the best-known VCs in the neighbourhood Starbucks," he says. That said, he considers Toronto's talent pool, exemplified in his team of 40 employees, to be second to none. To boot, Raichyk was able to raise $12 million locally. "We have the talent right here, our business environment is steadier and our tax system is friendlier," he explains. "So would we move to the Valley? Definitely not."

Allen Lau
Wattpad, CEO and co-founder

Allen Lau

Allen Lau's startup, Wattpad, markets itself as the YouTube of e-books and counts literary icon Margaret Atwood among its supporters. It's a free social network whose members have access to novels, poetry and other writing on their tablets and phones. "Our company is not the type you'd flip for $20 million," Lau says. "I want to remain independent for a long time." American investors are still ahead of Canadians in terms of big-picture thinking, Lau adds, but being in Toronto hasn't been an impediment to attracting stateside money. Which is good, because "I want to go as big as I possibly can."

Jeff Booth
BuildDirect, CEO

Jeff Booth

Vancouver-based BuildDirect is already the biggest online destination for heavy building materials, but Jeff Booth's ambitions are bigger still. According to Booth, there's been a trend in Canada to sell at around $30 million. "I believe leaders of business in Canada need to be bolder," he says. He also thinks big businesses play a key role in flourishing ecosystems. They help retain talent, attract capital and affect the general attitude of the local business community. "If BuildDirect could be a small part of that change, it would be something I would be very proud of," he explains. And that means not selling. Like Holmes, Booth says he wants to build a billion-dollar Canadian company.

More stories from Canadian Business

Scroll upScroll down

Recently recommended stories

advertisement