Slack, the US-based creator of a workplace communication app backed by investors including internet company Google, is set to confirm its place as one of the world’s hottest startups after agreeing up to $160m in series E funding, the Wall Street Journal reported yesterday.
The company has secured $135m from investment firm Horizons Ventures, which provided $50m, Institutional Venture Partners, Index Ventures and DST Global, and has the option to raise a further $25m from these new investors or its existing backers, according to people familiar with the matter.
Founded in 2009 as massively multiplayer online game developer Tiny Speck, the company raised more than $17m from investors including Accel Partners and Andreessen Horowitz before closing its one game, Glitch, in 2012. The leftover money ended up funding a pivot towards Slack’s freemium real-time communication app, which enables users to quickly and easily send, receive and categorise messages and files.
The latest funding is being raised at a $2.76bn valuation, more than double the $1.1bn valuation at which Slack raised $120m in October 2014. Its growth has been extremely rapid, even by current standards, but there are several factors that have fuelled the rapid expansion.
Firstly, Slack’s customers are continuing to use the app frequently once it has been downloaded, indicating that it is unlikely to see the kind of drop-off in use suffered by, for example, anonymous microblogging apps such as Secret or Yik Yak over the past few months.
The second factor is that, in contrast to some big-name startups such as Snapchat or Twitter, Slack is drawing revenue relatively early. The Slack app was launched just over a year ago and has accumulated 500,000 daily users, more than 135,000 of which pay a monthly cost of $6.67 or more for added features such as additional storage capacity or unlimited third-party app integrations, according to the WSJ.
Slack CEO Stewart Butterfield, formerly a co-founder of online photography network Flickr, stated in November that the company did not ‘need’ the funding, but it has expanded quickly without substantial cash spent on marketing.
The company only made its first marketing hire in October, and it is one area in which the series E capital could be invested. Slack’s valuation is based almost entirely on its potential and 500,000 users is still relatively small.
Alternatively, the money could perhaps herald an expansion of Slack’s technology to non-work functions. Although the service is primarily intended to operate as a workplace app, the raw communication technology could theoretically be opened up for public chat applications that could serve all kinds of communities and groups.
Blogging platform WordPress has already begun testing Slack as its main real-time communication platform, as opposed to IRC and ad hoc Skype chats, citing the technology’s ability to facilitate asynchronous conversation, its improved writing and maintaining tools, its mobile and native app compatibility and user-friendly nature.
Should other large-scale public networks begin using Slack’s technology, the company could end up becoming a huge presence in the online chat sector. China-based Tencent for example has grown into a $150bn company partly due to its WeChat system easing its route into the mobile internet space.
Google Ventures, the corporate venturing unit owned by Google, co-led the October series D round with Kleiner Perkins Caufield & Byers, while David Sacks, founder of enterprise social network Yammer, Andreessen Horowitz, Accel Partners and The Social+Capital Partnership also took part.
Slack had already raised $42.8m from the latter three in April 2014.
The latest round lifted Slack’s overall funding to $315m, and should it raise the additional $25m, it would have secured more than $320m in the space of a year. Butterfield himself has publicly claimed that startup valuations are in his opinion largely arbitrary, though in this case, Slack may end up outpacing its current valuation long before its investors exit.