The archive · Developer & Business Tools · Financial decision · 2016–2017
Slack takes $250M from SoftBank's fund at a $5B valuation
Workplace chat's biggest startup raises at ~25x revenue to stay private and outrun Microsoft, Google and Atlassian.
Slack Technologies
What the business is
Slack is workplace team chat — channels, direct messages and integrations — that replaced IRC, Hipchat and much internal email inside companies, priced around $6.66 per user per month.
Starting capital：$250M round reported in September 2017 at a ~$5B valuation, drawing on SoftBank's $100B technology fund.
How it started
By September 2017 Slack, led by CEO Stewart Butterfield, was the workplace chat that had displaced IRC, Hipchat and much internal email in many companies, with users in the HN thread describing being members of up to seven Slack workspaces at once. Butterfield had said in 2016 that Slack would stay private for at least another year and a half before considering going public, and at its previous raise at a $3.7B valuation the company was thought to be doing about $64M a year.
What happened
On 2017-09-17 Bloomberg reported that Slack had closed a $250M funding round at a $5B valuation, taking a slice of SoftBank's $100B technology fund. Commenters calculated the implied multiple at about 25x the roughly $200M in annual recurring revenue they attributed to Slack, down from roughly 57x at the earlier $3.7B round, and split over whether a chat app without real lock-in deserved it. The same week Slack held its first conference, Slack Frontiers, had launched threaded conversations, and faced Microsoft Teams bundled into Office 365, Google's Hangouts Chat in beta, and Atlassian replacing Hipchat with Stride; commenters also described Slack rebuilding parts of its product so teams larger than 1,000 people could use it.
No ending yet — it is still running.
Background
Slack is workplace team chat — channels, direct messages and integrations — that by 2017 had become the default way many companies talked, replacing IRC, Hipchat and a good share of internal email. The bet recorded in this funding round was that Slack could stay private and take SoftBank-scale money instead of going public, on the theory that a $5B valuation was justified by roughly $200M in annual revenue and continued growth.
CEO Stewart Butterfield had said in 2016 that Slack would hold off on an IPO for at least another year and a half, and private money kept arriving. Bloomberg reported on 2017-09-17 that Slack had closed a $250M round at a $5B valuation from SoftBank's $100B technology fund. In the HN thread that followed, commenters put Slack at about 25x annual revenue, down from roughly 57x at its earlier $3.7B round when it was thought to be doing about $64M a year.
The debate in the thread was about moats: Slack had strong adoption but weak lock-in, and the same week its first conference, Slack Frontiers, took place, Microsoft Teams was bundled into Office 365, Google's Hangouts Chat was in beta, and Atlassian was replacing Hipchat with Stride. Commenters also noted Slack had been rebuilding parts of its product to serve organizations with more than 1,000 people, which pointed to where the new capital would go.
The thread's skeptics argued that chat is cheap to reproduce and switch away from, while defenders pointed to Slack's rare product-led spread inside companies and its position as the category's default. The entry stops at the round itself: Slack confirmed nothing in the thread, and the outcome of the bet was still open.
What has to be true
- Private capital was cheap and plentiful in 2017, and SoftBank's $100B fund made large rounds available without the scrutiny of an IPO.
- Competitive timing drove the raise: Microsoft bundled Teams into Office 365, Google launched Hangouts Chat in beta, and Atlassian moved from Hipchat to Stride.
- A ~25x revenue multiple was rich but lower than the ~57x of Slack's 2016 round, so growth plus a lower multiple made the round defensible to investors.
- Slack's spread inside companies was a genuine advantage: users brought it to new teams, but the same virality made it easy to leave, so money was the available moat.
What can be applied
When the product looks easy to copy, capital becomes the moat: Slack raised at a frothy private multiple partly to buy runway and options while Microsoft, Google and Atlassian circled.
Aftermath
As of 2017-09-18 Slack had reportedly closed a $250M round at a $5B valuation, drawing on SoftBank's $100B technology fund, but had not officially confirmed it in the thread. Commenters estimated the company at roughly $200M in annual revenue and described it rebuilding for large organizations, launching threaded conversations and holding its first conference, all while Microsoft, Google and Atlassian pushed competing products.
Sources
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