Deals

Hootsuite CEO says the valuation tops $500M, but VCs aren’t buying it [exclusive]

Above: HootSuite CEO Ryan Holmes

Image Credit: HootSuite

Contrary to rumors, social media startup Hootsuite is not actively raising another round — but if it were, its price tag would be even higher than reported.

We had a nice chat yesterday with Hootsuite CEO and founder Ryan Holmes. He told us that Hootsuite, which raised $20 million from Omers Ventures in March, was already considering another raise in May.

However, Holmes said, the hunt for cash has cooled off a bit, but the valuation has gone up.

Hootsuite makes a web-based tool that individuals and companies can use to manage updates to social networks, including Twitter, Facebook, and Google+. It competes with Tweetdeck (which got acquired by Twitter), Buddy Media, Wildfyre, and Cotweet (which got acquired by ExactTarget in 2010). Unlike most of its competitors, it uses a “freemium” model: Hootsuite is free for individuals to use, but the company charges monthly fees for companies who want to deploy it to teams of people.

We asked Holmes point-blank if his company was really worth $500 million.

“I’m always talking to VCs, giving them updates,” he told us. “I was looking at doing a raise, and at that point that would have been a fair valuation. … Given some of the comparables in the market, at that point, we would have warranted that kind of valuation.”

(We reached out to a slew of VCs on this point; all declined to comment on Hootsuite’s possible valuation.)

But, Holmes continued, things have changed since then. The startup beat its $10 million revenue forecast for 2011 by a cool million, and it’s also on track to smash 2012 projections by a “significant” margin, said Holmes.

“We’ve been having some really big growth. … I think we’ve moved beyond [the half-billion-dollar valuation]. We’ve created a business with a higher valuation at this point.”

Holmes continued to say that the startup hasn’t been knocking too loudly on the door of Sand Hill Road since this spring. “The company is highly profitable, and it doesn’t really need the money at this point,” he said. “There are a lot of acquisitions happening, a lot of positioning in the market.”

Hootsuite’s investors are not Silicon Valley-based. Besides Omers Ventures, other major investors include Blumberg Capital and Hearst Ventures, the venture capital arm of the Hearst Corporation.


Did the Twitter API change kill the deal?

If “we don’t need no stinkin’ money” and “we’re worth more than that, anyway” sound like sour grapes to you, it did to us at first, too.

One big shake-up in the market is the recent upset over Twitter’s API changes. In fact, given the timing of the funding rumors and Twitter’s most recent “thou shalt not misuse our API” blog post, we wondered if the stern language from Twitter had put investors off on Hootsuite’s funding deal.

After all, Hootsuite’s product depends very heavily on Twitter’s API. And while Hootsuite incorporates Facebook and Google+ features into its product, it is very much a client — precisely the kind of client that Twitter has repeatedly asked third-party developers not to build. Repeatedly. Twitter dev ombudsman-in-chief Ryan Sarver laid down the law in a controversial memo last March, and the company’s intentions were further illuminated in an in-depth VentureBeat interview late last year.

But Holmes told us not to worry ourselves on his account; he and the Hootsuite team remain in close contact with the higher-ups at Twitter, and the API changes didn’t scare off any VCs.

“That fear around Twitter’s API and ecosystem, I absolutely don’t think it has hurt us,” he said. “We have it on very good authority that the product we’re building out is not in conflict with their roadmap.”

That communication is all important in the increasingly uncertain Twitter ecosystem. As repeat entrepreneur Loic Le Meur told me in an interview, “There are two types of Twitter apps: The ones Twitter likes, and the ones that are competitive and don’t have good communication with them.”

Basically, Holmes contends (more or less correctly) that Twitter is looking to take down consumer-facing Twitter clients and other products that strip the tweetstream of money-making promoted profiles, trends, and tweets, which ultimately pay to keep the lights on at Twitter HQ. Hootsuite, like many of the apps on Twitter’s good side, caters mostly to non-consumer users, so it’s not a threat to Twitter.

“Our userbase is small, medium, and enterprise businesses; that’s what we focus on,” said Holmes. “We’ve never focused on being a consumer product; we have a lot more functionality than a consumer needs.”

Late last year, when we asked Twitter’s Sarver for Twitter-based business ideas that were safe bets, he said, “Analytics is a huge sector for us, obviously, finding those insights you can bring to brands using this real-time corpus of data.” He also talked about curation (“finding the key tweets to talk about events that are happening, be that the elections, the Olympics, etc.”) and publishing (“figuring out the right content that will resonate with the audience”). And Hootsuite does focus on those areas, to a great extent.

Still, Hootsuite’s unique freemium model means that it’s still a highly-favored Twitter client among power users, meaning consumers. And there may come a day when Twitter decides to cut off that type of access entirely.

If that ever happened — that is, in a dystopian, nightmarish future wherein Twitter only gave read/write API access to enterprise apps — Hootsuite’s freemium product would have to omit Twitter from its services. If this seems like an unlikely scenario, keep in mind that Twitter restricting API access in the first place once seemed unlikely, too. Since then, API changes have killed off at least a few companies.

“I think it would take away the vibrancy of our product,” Holmes said of an unlikely-but-possible Twitter pull-out. “Twitter and Facebook are the biggest social networks for our users.”

And ultimately, the entrepreneur concluded, “I want to see Twitter’s API do well.”

And Twitter’s API will do well when developers heed the ever-less-subtle warnings from Twitter: Don’t, they repeat, do not make Twitter clients. Don’t take “promoted” content out of the stream. It’s going to be Twitter’s bread and butter within the next couple years, after all.

“It’s important to us that third parties have access to the data,” said Twitter CEO Costolo in a press meeting last fall. “I get a million emails a day about what Twitter could be doing to make more money, but … the advertising business will sustain us. We have no intention to scale the data licensing business. We’re just going to focus on scaling the advertising business.”

And as long as devs stay out of Twitter’s way when it comes to ads, they stand a decent chance of survival.

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