AWARD SPOTLIGHT: Real Ventures Winner of 2021 VC Regional Impact Award for Central Canada for Vanilla Forums
It was at a Techstars Demo Day in Denver in 2009 where Real Ventures founding partner John Stokes came across Vanilla Forums, an online community forum startup with two Canadian founders.
Stokes says his VC firm, a startup itself, was looking for companies to invest in from a new $5M regional fund. The catch was that companies had to be based on the island of Montreal, but the founders Mark O’Sullivan from Saskatchewan and Todd Burry from Ontario, were planning to build their business out of Boulder, Colorado.
Stokes had a pitch of his own: Consider moving the company to the island of Montreal. The founders were skeptical at first. After all, even Stokes describes the Montreal startup scene back then as a bit of a “ghost town,” but convinced the founders to come to the city to speak to the startup community and get a feel for it.
Real Ventures arranged an event at a local pub and invited entrepreneurs from the area to hear from the pair about their experience at Techstars.
“That was how we positioned it, but our real thought was, ‘could we expose these guys to the burgeoning startup community that existed in Montreal and could this community that we were starting to build be promising enough to convince them to move their business to Montreal?’” Stokes recalls.
The plan worked: Real Ventures committed to invest in Vanilla Forums, which committed to move to Montreal.
“It was because of the excitement and the vibrancy that they felt in Montreal, which was very similar to the type of experience and ecosystem they experienced when they were at Techstars in Boulder,” Stokes says of the relocation.
Vanilla Forums’ decision to move to Montreal also reinforced the startup ecosystem in the city that Real Ventures was looking to build.
“It gave renewed confidence to entrepreneurs in Montreal,” Stokes says, and led to several other investments in the $5M regional fund.
Vanilla Forums continued to expand and in 2011 Real Ventures made another investment in the company, bringing it to 10.6% from 12.8%.
A year later, O’Sullivan left the company to pursue other opportunities in Silicon Valley and his CEO role was filled by Luc Vezina, who was hired to help commercialize the software. Under Vezina, Vanilla Forums pivoted from an open-source company where you could download the software to a SaaS cloud-based product.
“Luc did a great job turning a great piece of software into a great business,” Stokes says, while also growing the company from about a half dozen employees to more than 50.
By 2019, Vanilla Forums saw an impressive 54% year-over-year growth and had established itself as a market leader in the online community solution space.
At the same time, the Real Ventures fund was nearing the end of its lifecycle and Vanilla Forums began to entertain new investors. In March 2020, the company announced it had secured an investment from Level Equity, a New York-based growth equity firm specializing in capital-efficient, rapid-growth software companies. The announcement said the Level Equity investment would help sustain Vanilla’s growth and accelerate its expansion into new markets.
“We are excited to partner with the Vanilla team,” Gautam Gupta, principal at Level Equity said when the deal was announced. “We’re always blown away by entrepreneurs and management teams that build rapidly growing category leaders having only raised $1M of prior institutional capital. Vanilla’s outstanding product and customer experience have made it the solution of choice for some of the world’s best-known brands. As companies continue to replace call centers with online solutions, Vanilla is uniquely positioned to play a big role in providing them with premium customer communities.”
Vezina says the company selected Level Equity as its partner because of its proven track record with other B2B software-as-a-service companies. He also credits Stokes and other board members for believing in the company from the start and sticking with it through the more challenging periods.
“Having a supportive board that is willing to live with a little bit of ambiguity in those early days and believing in the team that the team is going to figure it out is key,” Vezina says.
A unique part of the Level Equity deal is that it was with a PE firm, Stokes says.
“Acquisitions in the venture space are often made by strategic acquirers, but this transaction opened us up to the possibility that private equity firms could be another very valuable, very interesting exit opportunity,” he says, noting that it reinforces the links between VC and PE.
Real Ventures also did well on its investment in Vanilla Forums: Stokes says it paid back 78% of the $5M fund, while delivering an IRR of 23% and a multiple of invested capital of 10.8x.
Vezina says the company today continues to grow, especially as more organizations look to do business online and better engage their customers through community forums.
“We’re continuing to grow and to just get into new market segments to build up our product and we’re hiring like crazy,” Vezina says.
Vanilla Forums was recently sold to engagement platform Higher Logic to help it expand its offering to customers across new markets and geographies.
“Higher Logic has a proven track record in building community engagement and facilitating meaningful connections for organizations,” Vezina stated in the release announcing the deal. “With more interactions happening digitally, community has become mission-critical for almost every organization. We are thrilled to be joining forces with Higher Logic to create the pre-eminent online community solution.”
Level Equity will remain a significant shareholder of the combined business and Gupta and Ben Levin from Level will join Higher Logic’s board of directors, the company stated.