Why investors are so excited about Slack

The enterprise-software startup's valuation has shot up from $1.12B to $2.8B in six months

It wasn't long after the launch of Slack's namesake team-communication software last year that the San Francisco company was catapulted into the "unicorn" club -- that growing group of startups with valuations above $1 billion.

More than a few eyebrows were raised when the company achieved a $1.1 billion valuation last October, but this week, the company went much, much further. A new funding round has brought Slack another $160 million beyond the $180 million it had raised already, and its valuation is now $2.8 billion.

New investors Horizons Ventures, Digital Sky Technologies (DST Global), Index Ventures, Spark Capital Growth and Institutional Venture Partners joined investors Accel Partners, Andreessen Horowitz, The Social+Capital Partnership, Google Ventures and Kleiner Perkins Caufield & Byers in funding this latest round.

Slack's enterprise software-as-a-service offers real-time messaging, archiving and search; the company's goal is to outdo email as the primary tool for team communication. There's a free lite version of the product as well as a fully featured version starting at $6.67 per user per month.

The company now claims 750,000 daily active users and 200,000 paid seats -- both numbers have more than doubled since the beginning of this year, it says. Adobe, The New York Times, BuzzFeed, Live Nation, HBO and PayPal are among the companies using the platform.

Slack has "taken a page out of the consumer playbook and revolutionized business communications by taking a generationally different approach to messaging," said Mike Volpi, a partner at Index Ventures who joined Slack's board of directors as an observer as part of his company's investment.

"Slack has reached a level of early traction that's rarely seen on the enterprise side," he added.

To be sure, Slack has garnered more than a few fans among users, as its Twitter "wall of love" makes clear.

Still, it has some significant competitors -- HipChat and Yammer, to name just two. It also suffered a blow when a security breach in its technology was discovered in March. So what is it about Slack that has captured investors' imaginations to such a degree?

"The main issue is in Slack's focus on developing a messaging app specifically for businesses," said Charles King, principal analyst with Pund-IT. "Consumer apps like Facebook's WhatsApp really aren't designed to address the security, compliance, management and other issues required for business applications."

At the same time, Slack's technology isn't groundbreaking, said T.J. Keitt, a senior analyst with Forrester Research.

"At its core, Slack is not proposing to do anything that radically different from what's come before," Keitt explained. "We've had persistent chat; we've had activity streams."

Timing, in fact, may be one of the biggest factors buoying Slack so far, he added.

"We're at a different moment in the evolution of the enterprise," Keitt said. "There's much more willingness today to acquire collaborative technologies at the department or team level."

In many ways, Slack's $2.8 billion valuation underscores the subjective nature of the concept of value more than anything else, King said.

"It is a simple matter of demand and supply," he explained. "I'm certain that the VCs involved can quote chapter-and-verse explanations for why they think Slack is worth what they're paying, including messaging being a hot market, the potential value of business-focused solutions for deep-pocketed enterprises, and the need to move quickly so as not to miss out. But while Slack is doing well and growing admirably, this funding round resembles a massive crap shoot."

The market for workplace-collaboration software is crowded with numerous startups competing for a piece of the action, agreed Frank Scavo, president of Computer Economics.

"Current valuations like Slack's are unsustainable," Scavo said. Rather than intrinsic value, they reflect "a lot of money looking for a home."

Copyright © 2015 IDG Communications, Inc.

Bing’s AI chatbot came to work for me. I had to fire it.
Shop Tech Products at Amazon