John Ruffolo’s Maverix Private Equity has made its first deal, joining US billionaire Todd Boehly to invest in a Canadian company that has become a big player in the online influencer space.
Mr. Boehly’s Eldridge Industries and Maverix have paid $250-million for a minority stake in Viral Nation Inc., a fast-growing, profitable Mississauga company that is part talent agency and part marketing firm, and hasn’t previously raised outside money. The deal – amounting to $150-million up front and another $100-million over the next 18 months – values Viral Nation at $650-million postfunding.
Viral Nation serves the burgeoning class of online creators who have built giant followings, fueling an industry that has found new, effective ways for advertisers to reach consumers digitally. Market research firm Influencer Marketing Hub pegs the industry’s size at US$16-billion. Viral Nation, founded in 2014, reached $100-million in sales last year and expects to double that in 2022, said chief executive officer Joe Gagliese.
Viral Nation’s 330 influencers are household names to millions of Instagram, TikTok and YouTube fans. The influencers include flight attendant Sandra Kwon and “daily scream” star Spencer Hunt. The company expanded into sports last year after the US National Collegiate Athletic Association let athletes sell their name, image and likeness rights; clients include US college athletes Anthony Hamilton Jr. and Jayden Hardaway.
The company also sells marketing services to 1,000 corporations who pay influencers to flog their offerings to followers, often in unconventional ways. Clients including Tim Hortons, Hasbro, Canon, Anheuser-Busch, Microsoft, Uber, Warner Brothers, Match.com and Coca-Cola Co. “Influencers are making more money and brands are starting to understand how valuable they are,” Mr. Gagliese said in an interview. People who aren’t influencers “want to be influencers more than ever.”
But what made Viral Nation particularly interesting to its new investors was its digital underpinning. Viral Nation uses an in-house technology platform to automate the sourcing, negotiation and management of digital marketing campaigns, providing performance analytics to brands. It also uses the platform to manage some staff functions.
“They are building an entire tech-enabled platform to make it less people-intensive so they can get more and more profitable,” said Mr. Ruffolo, Maverix managing partner.
Mr. Gagliese said his 257-person company plans to expand its technology team, and is set to expand its digital offerings, including an artificial intelligence-powered “social-media background check” service that will audit and monitor social media to help brands track the influencers they connect with. The company is also eyeing potential acquisitions.
The deal brings to Viral Nation two of the highest-profile private investors in the US and Canada.
Mr. Boehly’s investments include stakes in the Los Angeles Lakers and Dodgers, sports betting company Draft Kings, plus magazines The Hollywood Reporter, Billboard, Variety and Rolling Stone, and production companies A24 and Dick Clark Productions. Eldridge partnered with Sony Music Group last year to buy Bruce Springsteen’s recorded music and songwriting catalogue. Mr. Boehly is part of a consortium trying to buy the Chelsea soccer club from Russian oligarch Roman Abramovich. Eldridge also owns stakes in Canadian financial technology companies Wealthsimple Technologies and Koho Financial.
Mr. Ruffolo is best known for leading the venture capital group at pension giant Ontario Municipal Employees’ Retirement System in the 2010s. Maverix, which he co-founded in 2019, is in the process of closing its first US$500-million fund, which aims to back more mature conventional industry players that use technology to build competitive advantages.
Mr. Gagliese credits Viral Nation’s success in part to “market timing – it couldn’t have been better.”
He and co-founder and co-CEO Mathew Micheli were business students at Toronto’s Ryerson University who dabbled as entrepreneurs on the side, including buying and selling liquidated returns from large retailers. One day in 2013, Mr. Gagliese came up with the idea of helping NHL stars earn extra money by promoting their sponsors on their social media sites. They met with an agent but their idea didn’t get far – the potential sums weren’t enough to matter to well-paid athletes.
But they realized there was an opportunity to represent the new class of social media influencers. They signed their first client, songwriter Ray Ligaya, a star on now defined Vine, in early 2014 (he’s now their head of talent relations), quit Ryerson and soon had dozens of clients. They expanded into marketing services soon after.
By 2017, the pair felt Viral Nation couldn’t compete longer-term without a technology play. “I had this vision that marketing companies would turn into technology companies and [conventional] marketing companies would be gone,” Mr. Gagliese said. “I wanted to hedge against that.”
Meanwhile, other influencer marketing software startups, such as LTK and Grin, raised venture capital.
Mr. Ruffolo said the Viral Nation’s technology distinguishes it from a consulting business “like the advertising conglomerates it is ultimately competing against.” The strategic association with Eldridge is also paying off as Viral Nation is working with some of its properties, including a campaign to help the Golden Globe Awards (Mr. Boehly is interim CEO of the Hollywood Foreign Press Association) improve its image.
“Viral Nation’s expertise in connecting brands, creators and audiences gives them unique insight into the broader needs of organizations and individuals embracing new media,” Mr. Boehly said in a statement. “We’re excited to partner with them on expansion and innovation that enables everyone to grow and thrive across the entire social ecosystem.”