- The group-messaging app Slack aims to revolutionize the way employees in organizations communicate.
- Slack has attracted a lot of attention and investment interest and is the fastest startup to reach a $2B valuation.
- With around $340M in cash and an unreasonable valuation, it is still early for a Slack IPO.
- Investors should keep an eye out for the Slack IPO, which might be the hottest IPO in 2017.
The enterprise chat app Slack is one of the hottest startups today and is a prominent IPO candidate. The Vancouver-based startup was founded in 2009 by ex-Flickr founder Stewart Butterfield as a social gaming company. He raised more than $17M for that cause. However, in 2012, only one year after the original launch date of Glitch, when the company’s flagship social game was about to launch, it decided to shut down its gaming business and turn the business around. The company changed its name to Slack and started developing professional group messaging apps to improve productivity in the workplace by reducing email volume and transferring messages from emails to Slack messages.
Slack brings a truly unique, disruptive product to the enterprise communication field and provides a solution that combines instant messaging and social media feeds, and integrates with other enterprise software already in use. Slack has the user experience of an instant messaging app and it allows the basic direct messaging and group messaging as WhatsApp, Facebook Messenger, owned by Facebook (NASDAQ:FB) or other IM apps offer. However, Slack differentiating features are its professional integration – users can send files through Slack from their desktop or other enterprise application the enterprise is using. Conversations in the app appear in channels that are open to everyone so employees from different divisions within the same company can receive updates quickly and efficiently and communicate with each other in an easy way. Conversations can be confidential and are fully searchable so files and information could be retrieved later and prevent any knowledge or information losses that usually happen in email conversations.
Slack messaging app attracted attention from the biggest and leading venture capital funds including Google Ventures, Kleiner Perkins Caufield & Byers, Accel, Andreessen Horowitz, Index Ventures and more. The attention the company attracted enabled it to raise $322M in less than two years and became the fastest startup to reach valuation milestones of $1B and $2B. As shown in the chart below Slack is currently valued at $2.8B, which reflects an incredible high P/S ratio of 93 assuming Slack achieved its goal to generate $30M in revenues in 2015.
Even though it is most likely that Slack will not go public with such a high valuation, CEO Butterfield told an Australian newspaper that the company has already started to get ready for an IPO that will take place in mid-2017 at the earliest. According to Butterfield, “We are trying to run the company in such a way that we would be READY to go public whenever we are ready. That doesn’t mean we intend, want, or need to go public anytime soon. It’s like taking a self-defense course to be prepared for any eventuality (but without the general intent of going out and smashing people to the ground).”
The slowdown in the private equity market and the several markdowns startups have experienced in the recent months may suggest that Slack will have a harder time raising money in the future. To get ready for such a scenario in which the private equity market is not a valid option, the company’s CEO is preparing the company for an alternative option in case the company should need cash fast. Taking into account that Slack still has $340M in unspent cash and together with an unreasonable P/S ratio of 100, I highly doubt that we will witness Slack going public anytime soon. As the year progresses, I would recommend that investors keep Slack on their radars and update themselves regularly about this startup as it is poised to become a very hot IPO in 2017.