Klout's Long, Bumpy Road to a $100 Million Acquisition
Updated on March 27 to include news of Klout's acquisition.
On a Monday in February, Klout founder and CEO Joe Fernandez was touting his startup as a longterm company with plans to go public. "I think we're one of the few companies that can be a stand-alone, major business," he said. "We always have a lot of investors following us." By the next day, Recode.net reported the startup was being acquired for at least $100 million by Lithium Technologies, a San Francisco-based customer service company. Now news has emerged confirming the startup was acquired for $200 million.
Lithium Technologies is flush with $150 million in financing, while Klout--the San Francisco startup known for a score that reflects people's social media influence--had reason to eye an exit.
Fernandez started Klout in New York City five years ago with the goal of helping people become influencers online. That "took a lot of time and effort," Fernandez says, as well as capital--he almost maxed out his then-girlfriend's credit cards as she helped bootstrap the business.
In 2008, doctors wired Fernandez's jaw shut, inspiring the bored data guru to turn to the Web. (In a past life, Fernandez provided data solutions to the real estate industry as director of innovation and research at OnBoard Informatics; in 2003, he co-founded Evalulogix to help school districts meet their special education reporting mandates.) "I had to depend on Twitter and Facebook," he told Inc. in 2012, "and it was amazing to me I could tell who trusted my opinions instantly from my phone, and their opinions in turn influenced me."
Realizing some people made more of an impression on him than others, Fernandez decided there might be some value in ranking them, so he developed an algorithm that would eventually become Klout's infamous score. The algorithm would endure countless facelifts over the years, oftentimes to factor in users' activity on up-and-coming social networks such as Twitter, Facebook, and Instagram, as well as the music service Last.fm.
The startup was gaining some traction until word spread in 2011 that pop singer Justin Bieber had a higher score than President Obama. This unleashed a backlash to Klout scores, particularly among the tech elite they purported to benefit.
In 2012, Klout managed to raise a $30 million Series C round from investors including Kleiner Perkins, Venrock, and Institutional Venture Partners, bringing its total funding to more than $40 milion. The company also introduced Klout Perks, a service that doles out freebies to social influencers--often in the hopes that they'll share them--such as a VIP subscription to People magazine or a book of barbecue recipes curated by Esquire.
On Monday Fernandez spoke fondly of Perks and the various partnerships he's forged with data companies such as Microsoft. But Klout still had issues: Users weren't staying on the site after checking their score and would log in once a week at most. "Honestly, there wasn't much to do on Klout," he admits. "You'd check your score and go on about your day."
To counter that problem, Fernandez this week unveiled a Content page, which pulls stories from Bing's Internet crawlers for users to share from their Klout account. Fernandez says the move was intended to get people to think of Klout as part of a daily habit rather than the site that just issues "your score."
"We're not looking at it as Twitter or Facebook, something you always have open," he says. He wants users to "come once a day and find information. LinkedIn wasn't a regular thing before, but as they added more features that's changed."
The company's newest plan is to create a social platform for midsized to large businesses that can help them grow their following by having influencers share their content. The Content page features "already-baked in" content, Fernandez said, which reflects what users are sharing on social media as well as what they strive to be known for. So if you're a politics reporter with ambitions of covering film, you're likely to see posts from Politico and The Los Angeles Times.
The brand element will come in by way of sponsored content mixed in with other content shown to users. "If we can highlight organic brand content that makes you look interesting and relevant," that's a strong selling point, Fernandez says.
Eventually, he says, Klout could expand into everything social from "suggesting hashtags that will get you more views to highlighting conversations you might want to join in to asking questions that inspire you to create video or images." Klout is currently testing a new social platform for these purposes with seven midmarket and major brands. "Long-term, we believe this will be beneficial to small business," Fernandez says. The company's plan is to focus the rest of this quarter on consumers and then ramp up the business testing in the second half of the year, he adds.
If the acquisition rumors are true, it's a fair bet that Lithium Technologies--which helps customers like AT&T, Best Buy, Sephora, and Skype expand and engage with their online audiences--has designs on taking advantage of all these new initiatives. "Our users connect every major social network on Klout," says Sanjay Desai, Klout's chief product officer. "We can really see not just the data in aggregate but on a personalized level how users are behaving on social media."
JILL KRASNY | Staff Writer
Jill Krasny is a staff writer for Inc. magazine, where she covers the intersection of entertainment and startups. Prior to Inc., she was a writer for MTV and Esquire and an editor at TheStreet. She is a graduate of the University of Southern California with a degree in communication. She lives in New York City.