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Money Fast-growing Canadian startup VarageSale raises $34-million from Silicon Valley investors

Started three years ago, underground phenomenon VarageSale has been picking up speed since its first injection of U.S. capital in July, 2014 (also by Sequoia, though terms were not announced).

VarageSale

One of Canada's hottest social media startups just got a huge vote of confidence from two of Silicon Valley's most successful venture capital funds.

Sequoia Capital and Lightspeed Venture Partners are leading a $34-million investment in VarageSale, a Canadian app and listings marketplace that acts as a virtual garage sale or swap meet as well as a social meeting place.

VarageSale Inc., based in Toronto, has been called the best Canadian startup you've never heard of, unless of course you're one of its millions of users. Started three years ago, the underground phenomenon has been picking up speed since its first injection of U.S. capital in July, 2014 (also by Sequoia, though terms were not announced). Investors from Floodgate, Real Ventures, iNovia Capital and Version One Ventures also participated in this b-round financing.

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Users can sell everything from children's clothes to real estate on VarageSale's photo-heavy interface, which feels like you are looking at a friend's Instagram or Pinterest page and less like the leading text-based classifieds sites Craigslist or Kijiji. "We're building a platform for trusted local communities… for a safe and local environment," says CEO and co-founder Carl Mercier. "The experience quickly becomes so much more than buying and selling."

Sequoia is a legendary Valley fund, with an investing record that includes early funding for Google, not to mention stakes in billion-dollar startups like DropBox, Airbnb and WhatsApp. Rather famously, the partners have had a rule where they wouldn't invest in any early stage startups they couldn't reach via a bicycle ride from their Palo Alto offices near Stanford University.

"We have another rule where we always break our own rules," says Bryan Schreier, a partner with Sequoia Capital who sits on VarageSale's board.

VarageSale started in Montreal, but although there were conversations about moving the operation to California, it ultimately chose Toronto (for easier access to Waterloo's talent pool) and is about to move again into a newly renovated space in the city's core.

The money will help the team expand further (already they have grown from 10 to 50 employees in recent months), particularly because Mr. Mercier and his co-founder and wife Tami Zuckerman have so far made no efforts to monetize their platform. Buyers and sellers contact one another one the site, but sales are made offline and VarageSale doesn't get a cut, or collect a fee.

Delaying monetization in order to grow the service is a popular trend among startups, and Mr. Schreier, a former Google executive, says VarageSale has seen "incredible growth in the U.S. and Canada, and frankly it's a phenomenon that's very difficult if not impossible to reproduce."

Some 90 per cent of the traffic is on mobile, and the company says 50 per cent of its user base visits once a day. While it won't say how many users it has (other than "millions"), Mr. Schreier says its internal metrics are stunning for this category of app, with users spending far more time on VarageSale compared with Craigstlist-type services.

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"I haven't seen [user] engagement like this since we first saw WhatsApp for example. This is the kind of company where you break any rules," says Mr. Schreier. Growth has mostly been organic via word of mouth. Users log in with their Facebook ID, which has also helped goose signups.

WhatsApp, which now has almost 700 million monthly active users, sold itself to Facebook for what ended up being $19-billion (U.S.) in 2014.

Ms. Zuckerman, a former teacher, got the idea when she grew frustrated with the user experience of the more traditional listings services and found not knowing who you were arranging to meet a little creepy and unsafe. VarageSale's listings are grouped into geography-based communities, and you can't join unless you've been approved by local moderators, which adds a layer of trust and identity.

"We're bringing back that small-town feeling," says Ms. Zuckerman, who notes that many of the sites users are adults, moms even, who are looking to connect with neighbours and interact offline with people they meet on VarageSale. "We started this for our community in Montreal… We had no idea it would turn into an international phenomenon."

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