Hootsuite knocked out of $1B ‘unicorns’ club in writedown
Vancouver tech star subject to wider rebalancing within sector
Ryan Holmes, CEO of local tech-sector darling Hootsuite, says business is “healthier now than ever,” but the firm’s value appears to have taken a hit as venture capitalists rethink their expectations for the industry.
In a recent report, Bloomberg tracked a move by Boston-based Fidelity Investments to write down by 18 per cent the value of a stake it purchased in Hootsuite as lead investor in a $60-million US financing in 2014.
That deal, the latest in $250 million that Hootsuite has raised, pushed the company to a $1-billion US valuation, according to the tech research firm CB Insights, territory occupied by the fabled “unicorns” — privately owned tech start-ups that have crossed the billion-dollar threshold.
Recent developments, however, including poorer-thanexpected results from IPOs such as data-storage firm Square Box, and a slowing of venture capital into start-ups, is bringing about a revaluing of tech portfolios.
Bloomberg said Fidelity’s writedown was one of several devaluations in its portfolios revealed by tracking Fidelity’s public filings.
Holmes, in a brief statement, said that Fidelity’s writedown “isn’t indicative or reflective” of his own outlook for the company.
“They applied public averages to their private portfolio,” Holmes wrote in the statement, which was relayed to The Sun by Hootsuite corporate communications manager Sandy Pell.
“I can tell you that this valuation is not indicative or reflective of our business outlook, growth rates, and operational metrics,” Holmes wrote.
Hootsuite is the maker of a social media management app, which operates as a web-based dashboard that organizes users’ accounts across networks such as Twitter, LinkedIn and Facebook. Its website claims that it has more than 10 million users.
To date, the firm has raised $250 million through five rounds of financing, including a $165-million deal lead by New York-based Insight Venture Partners and included OMERS Venture, a subsidiary of the Ontario municipal employees pension fund.
In an email, Fidelity spokesman Chris Pepper said the firm doesn’t comment on individual companies due to its compliance policies, but said generally that “we have a rigorous and thorough valuation process for mutual fund holdings.”
The rebalancing in the industry is a trend that started last fall, said Robert MacDougall, chief financial officer at Vancouver-headquartered Wavefront, a business incubator in mobile technology. It follows a spending spree by investment funds and venture capitalists that occurred through 2014 and the first half of 2015, until “rapidly cooling last fall.”
“Venture funding, deal activity and exits slowed down as concerns rose over inflated valuations of unicorns,” MacDougall said in an email, so “the revaluation is a good thing as it shows the market is compensating for the sudden increase in (values).”
Wavefront chairman Peter Van der Gracht said the writedown also isn’t surprising because public companies in the tech sector have come off highs experienced six months ago with considerable volatility in share prices.
The Nasdaq 100, for instance, saw big swings down and back up during 2015. Since the beginning of the year, the tech-heavy index fell 15 per cent by Feb. 9 before recovering half of the loss by the end of this week.
“You would also expect to see that kind of volatility in privatemarket valuations,” Van der Gracht said, although private companies are harder to evaluate because their shares don’t trade and they aren’t liquid investments.
“But it continues to be a good time, overall,” he said.
The tech sector has also started to hear warnings that investors need to be more discriminating with start-ups.
Microsoft co-founder Bill Gates told the Financial Times that he expects valuations of the unicorns to fall over the next two years after a period of “overenthusiasm” among Silicon Valley investors.
“It never should be a case of closing your eyes and saying, ‘Oh, it’s a tech company, just throw money at it,’ ” Gates was quoted as saying.
That was a strategy that worked for a while, but “now you actually have to open your eyes and look at the company.”
In that context, Holmes said in his statement that “my team has proactively organized for cash neutrality” for 2016, a year in which the company expects “more challenging financial markets.”
In December, Hootsuite made a small round of layoffs — 20 positions among a roster of 700 employees — which sparked speculation about the company’s motivations, including whether the company was “rightsizing” in preparation for making an IPO.
At the time of the layoffs, Pell said Hootsuite had completed a reorganization of its now global operations, which included merging and cutting some business units for a “simpler more aligned” structure.
Late last year, ahead of the layoffs, Hootsuite hired some highprofile executive talent.