Billion Dollar Unicorns: Slack Delays IPO to Next Year

Slack appears to be on an on-again-off-again relationship with the stock market. At the end of last year, the company appeared to be gearing up to go public in 2016. But more recent news reports and comments by the management suggest that the stock market is quite a mile away for the enterprise chat services vendor.

Slack’s Offerings

San Francisco-based Slack was founded in 2009 by Flickr founder Stewart Butterfield and other Flickr executives including Serguei Mourachov, Eric Costello, and Cal Henderson. Slack was born as Tiny Speck and was initially designed to create a Flash-based multi-player game Glitch. But after a year of launching Glitch, Tiny Speck’s team realized that things weren’t panning out as they had expected. It decided to shut down and began to improve its legacy chat software. While working on that project, Tiny Speck realized that there was a market opportunity in the chat product and pivoted itself as an enterprise chat app provider. It renamed itself as Slack in 2013.

Today, Slack offers professional group messaging apps that are targeted to improve productivity in the workplace by reducing email volume. Its platform is able to transfer messages from emails to Slack messages to simplify work life. Users can also collaborate with each other through a simple drag-and-drop method to share files. Its search feature allows users to search for messages, notifications and files within the Slack archive and within the content shared on Slack. It boasts of being a unique enterprise communication app that is able to provide a solution for instant messaging and social media feeds that integrates with other enterprise software.

Slack’s Financials

Slack operates a freemium model for its platform. The basic version is available for free and teams can purchase the higher end products for a subscription fee ranging from $6.67 per user per month to $15 per user per month. The fully loaded version comes with features such as unlimited archival of messages, unlimited integrations, simple usage statistics, customer support, and Google authentication.

Since Slack is privately held, it does not disclose its detailed financials. Slack was estimated to be operating at annual revenue of $30 million in 2015 and analysts estimate that it is trending at annual revenues of $64 million in 2016. Recent reports reveal that it has a user base of over 4 million daily active users with a paying user base of over 1.25 million. Its application has been deployed across organizations such as AirBnB, Time, Pinterest, BuzzFeed, and Samsung.

Slack is venture funded and has raised $539.95 million from investors including Thrive Capital, Social Capital, GV, Kleiner Perkins Caufield & Byers, Accel, SV Angel, Andreessen Horowitz, DST Global, Horizon Ventures, Index Ventures, IVP, Jeff Weiner, and Slow Ventures. Its last round of funding was held in April this year when it raised $200 million in a round led by Thrive Capital at a valuation of $3.8 billion. A year ago, it had raised $160 million at a valuation of $2.8 billion, and back in October 2014 it was valued at $1.12 billion.

Slack’s Growth Plan

Slack has been using its latest funding for product development. Its product road map includes video and voice chat add-ons besides the much awaited enterprise package. The company expects to launch the enterprise version of its app by early 2017 and will include single sign-on as well as management and provisioning options. So far, Slack has been deployed across teams within organizations and has not necessarily been purchased as an enterprise-wide option for a company. The Enterprise edition of Slack will help change that.

But despite the product upgrades, it won’t be an easy market to address for Slack as the competition in the industry remains intense. Most organizations on Microsoft applications are already subscribed to Microsoft’s Lync and Skype messaging services along with the recently announced collaboration tool called Teams. Breaking that group away won’t be an easy task. Additionally, there are other Slack like players that include Jive and Atlassian software, the more recent BroadSoft’s Team-One platform, and of course Facebook’s Workplace.

Given the competition, Slack appears to be watching its plans on going public. While the company is seeing rapid growth in its user base, it needs to keep expenses under control and deliver a sustainable business model that can sustain the price war being raged by the bigger players. Currently Microsoft is offering the Teams tool as part of its Office 365 package and Facebook’s Workplace costs a much more modest $3 for the first 1,000 active users, $2 per user for up to 10,000 users, and $1  per month for organizations beyond 10,000 users.

As you know, I am not a fan of companies that raise exorbitant amounts of money. $539.95 million in financing to produce $64 million in revenue doesn’t make any sense to me. Investors often kill perfectly good companies by over-financing them. I hope, Slack will avoid that fate.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Photo Credit: erokism/Flickr.com

This segment is a part in the series : Billion Dollar Unicorns