VarageSale fails to monetize in time, acquired by VerticalScope

VarageSale

Earlier this week, VarageSale announced that it had been acquired by Toronto-based VerticalScope for an undisclosed amount.

As part of the acquisition, some members of VarageSale’s engineering and customer support department joined VerticalScope’s team at their Toronto office. In a Facebook post on startup community group StartupNorth, co-founder Tami Zuckerman shared a list of some former employees now looking for jobs.

“Today marks a new chapter for VarageSale as it has been acquired by VerticalScope, another Toronto-based company that focuses on building online communities,” said Zuckerman. “We are excited that VerticalScope will continue to deliver on our mission to be the #1 choice to help our community members stretch their budgets.”

Sources familiar with the VarageSale acquisition have indicated that CEO Andrew Sider does not intend to stay with the company.

The list includes 24 people, but does not reflect the full employee headcount laid off. VarageSale did not respond to multiple requests from BetaKit to confirm the total number of employees let go. Based on the accounts of multiple sources close to the matter, and an estimation placing company headcount somewhere between 50-100 employees, our best guess is that anywhere from 30 to 50 percent of the company was laid off.

BetaKit has also been unable to confirm with VarageSale which members of the senior team are transitioning to VerticalScope. Sources familiar with the VarageSale acquisition have indicated that CEO Andrew Sider does not intend to stay with the company.

VarageSale was co-founded in 2012 by husband-and-wife team Zuckerman and Carl Mercier. Zuckerman thought of the idea after trying to sell old stuff on classifieds websites, which she found to be text-heavy and lacking a focus on safety. VarageSale — which focused on building a more transparent classifieds platform — would eventually go on to raise $34 million from Sequoia Capital and Lightspeed in April 2015. Per Crunchbase, VarageSale has raised $76 million CAD ($60 million USD) from investors like iNovia Capital, Real Ventures, and Version One Ventures.

By early 2016, however, there were some signs of struggle for the company, which laid off 26 people, including its VPs of product and engineering.

Two months later, Mercier would step down as CEO to take on a chief product officer role. The company stayed quiet over the next year, and as it brought on a new VP of engineering in August 2016, Sider shared that they were seeking product-driven growth over monetization from paid advertising. The focus for VarageSale was to double down on its community, mostly women and moms.

In May 2017, VarageSale worked to demonstrate its traction, announcing the addition of Kijiji founder Janet Bannister to its board, and announcing that it had grown its monthly active users and GMV 100% year-over-year, while also surpassing Kijiji listings in 10 cities across Canada. Bannister’s stated role was to help the pre-revenue company with its long-term monetization strategy.

“The plan is to help continue VarageSale’s extended growth trajectory and ever-advancing market position, cementing its place as Canada’s leading, safety-first online marketplace,” Bannister said at the time.

BetaKit also reported at the time that multiple sources indicated VarageSale had as little as six months of runway left. Sider said that the company was hoping to raise additional funding over the next 12 to 18 months.

Given Bannister’s stated role on VarageSale’s board, and her past experience with Kijiji, BetaKit sent the founder and VC questions related to the acquisition. Namely, whether she considered the sale to be a successful outcome, or the only option available for a company that had failed to monetize its own touted traction. At time of publishing, Bannister has yet to respond to multiple requests.

VerticalScope owns more than 600 niche online communities in industries like automotive, health, tech, and sports. Persons familiar with company’s business model and approach (including a former acquisition target) indicated a preference to scoop up vulnerable communities cheaply in order to better leverage ad inventory (Torstar is a majority stakeholder in VerticalScope). VarageSale’s user base, which encourages buying and selling goods within neighbourhoods and small communities, seems like a perfect fit in the company’s portfolio.

“The strength of VarageSale is in its highly engaged user base who buy, sell and connect through their online marketplace. Their team has built a unique product predicated on a customer-centric, safety-first approach,” Rob Laidlaw, CEO of VerticalScope, said in a statement.

Earlier this month, VerticalScope was hit with a security breach, potentially compromising over 2.7 million user accounts, according to KrebsonSecurity. The company’s second breach in the past year raises questions as to where VarageSale’s user data will reside, given its safety-first approach.

Douglas Soltys contributed to the reporting of this story.

Jessica Galang

Jessica Galang

Jessica Galang is BetaKit's News Editor.