Slack: The Billion Dollar Accident



The latest entrant into technology’s billion-dollar club got there by mistake.

Slack is the outgrowth of a communication system that Stewart Butterfield built for his last product, a video game called Glitch. But there was one problem. Few people played Glitch — the game was a failure.

However, Butterfield and his team loved the product they’d built to communicate with one another, share files and search chat history, so they shut down Glitch and focused on Slack. Since launching the product in February, the San Francisco-based company has signed on 30,000 teams, including 73,000 paid individual users. Customers include Expedia, Pandora and Salesforce.com.

Slack announced recently that it raised $120 million at a valuation, including the fresh capital, of $1.12 billion. Kleiner Perkins Caufield & Byers and Google Ventures led the financing, with participation from existing investors Andreessen Horowitz, Accel Partners and The Social+Capital Partnership.

Prior to the current funding, Slack and its predecessor had raised $60 million, with most of that coming in an April financing round.

In February, Marc Andreessen tweeted this about Slack: “I have never seen viral enterprise app takeoff like this before — all word of mouth.” Six months later, he tweeted a chart showing Slack’s rocket-ship growth from fewer than 16,000 daily active users to more than 128,000, calling it “unprecedented.”

Butterfield is no amateur entrepreneur. In 2002, he started a service that eventually became photo-sharing site Flickr, which he later sold to Yahoo for between $22 million and $25 million, according to a recent profile in Wired magazine.

The market is much frothier now, but investors like Andreessen are betting the entire legacy software Stack used by companies is being rewritten and rebuilt. Thus, for the winners, current revenue isn’t a reflection of the opportunity. Even so, Slack said it’s adding $1 million in annualized revenue every month.

Slack’s mission is to be the central repository for all company communication. It currently integrates with more than 60 other businesses, including Dropbox, MailChimp and GitHub. Companies pay $8 per user per month or $80 a year.

What can such a young company do with so much capital? According to the statement, Slack will be pouring money into marketing, international expansion and strategic acquisitions. The company currently has 63 employees and is looking to triple in about the next year, Butterfield said.

While Slack is generating plenty of cash, Butterfield is taking advantage of an environment that’s seen venture capitalists invest more money than at any time since the dot-com bubble.

“We can’t call a top, but it’s easy to see we’re far from the bottom,” Butterfield said in an interview. In raising a hefty round, “we can afford to be a little more experimental in how we roll out marketing.”

Reprinted by permission.

Image credit: CC by Matt Brown

About the author: Ari Levy

Ari Levy is a senior tech reporter for CNBC.

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