Why Messaging Startup Slack Keeps Raising Money It Doesn’t Need

Slack Technologies Inc.’s product is only two years old, yet the corporate messaging startup has already raised more than $300 million. And it’s not stopping there. The San Francisco company has been looking to raise between $150 million and $300 million more, Bloomberg reported this month.

Stewart Butterfield, the chief executive officer at Slack, said the company is close to profitable. So why continue fundraising? It’s partly a recruitment tool. Butterfield explained during an onstage interview at South by Southwest that workers like to see the company’s valuation continue growing at a rapid pace.

Slack competes with other high-flying startups and major tech companies like Google Inc. and Facebook Inc. when trying to lure top talent. When job candidates ask why they should place their bets on Slack’s stock instead of Google’s, a soaring valuation helps answer the question. “Getting a valuation tick would be the only rationale for raising money,” Butterfield said. “The reality is that over the last two years, compensation has gone crazy—especially in the last six months.”

After an investment valuing the company at $2.8 billion less than a year ago, Slack is looking to increase that to as much as $4 billion with the current fundraising round. It’s an unusual case in a cooling startup fundraising environment. Most companies can no longer treat venture capitalists like ATMs. Butterfield said raising money is generally harder now. Investors are skittish about an imminent plunge in the public markets, which could drag down the private markets, he said.

But Butterfield doesn’t expect carnage. “There will definitely be a shift in venture capitalist behavior, dependent on what’s going on in the public markets, but it takes a while,” he said. VCs still have plenty of cash sitting around in funds. They probably won’t give the money back, and it’s their job to invest it. “They might pull back temporarily, and I think we’ve seen that over the past couple months,” Butterfield said. “But they’re not going to pull back forever, because they can’t.”

For Slack, the free-flowing capital has enabled it to spend on advertising and other ways to keep it growing. The company has posted billboards in several cities and aired commercials on television.

Butterfield, who also co-founded photo-sharing site Flickr and sold it to Yahoo! Inc. in 2005, acknowledges that he’s benefited from a bit of luck in his career. “We are clever, and we work hard, but every time there was a coin toss, it came up in our favor, over and over again,” Butterfield said. “I’m enjoying this, and I will never have another opportunity again like this in my lifetime.”

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