Could Slack’s $7.1bn valuation be a poisoned chalice?

Slack, a workplace collaboration application, recently raised $427m in a financing round that gives it a valuation more than 40% higher than its last fundraising under a year ago. 

It means that the San Francisco-based start-up is now valued at $7.1bn, after it raised yet more funds on the buoyant private equity market for technology companies, rather than seeking an initial public offering (IPO).

All in all the firm has raised a whopping $1.3bn. But the question now is whether the company could have set expectations too high – after all, at some point its investors will need a return. It’s also possible that it would have been better off filing for an IPO. Though potentially more costly as a way of raising additional investment, it would have given the company some first-mover momentum and additional visibility in the market for ‘next generation’ collaboration platforms.

In fairness, it’s a category that is relatively hard to define. In essence though it is the evolution of standard email to more feature-rich collaboration tools, that include the likes of online file sharing, chat, voice and video conferencing and presence (knowing who is where and whether they are available), and so on.

It is not as if Slack did not deserve to win continued support from existing investors as well as take a tranche of money from new backers. After all it has 8 million daily active users, many of whom use the basic product free, but also 70,000 paying teams at customers including IBM, eBay and BuzzFeed. 

But it isn’t the only game in town. Notable competitors include Microsoft’s Teams, which despite somehow not being seen as quite as trendy as Slack does offer excellent integration with Office 365 and other Microsoft apps, as you would expect. Also following in Slack’s footsteps is Facebook Workplace, which connects teams with unlimited groups, messaging, calling and storage, and has the advantage of the sheer scale of the Facebook ecosystem on its side.

There are many more though: Chanty, Flock, Fleep and Ryver, to name a few. Slack has seen some of them in its rear-view mirror, for example buying out Stride and HipChat last year and rolling their technologies into its own platform.

Slack did not disclose recent revenue figures but the company said last year it had hit annual recurring revenue of $200m, and was growing at 100% a year. That is certainly impressive enough to grant it its ‘unicorn’ status (privately-held companies with a valuation of over $1bn). Whether the heat could get too much for it to generate a return for its investors – or whether it would have been better to shoot for an IPO so it had listed stock as a mechanism to buy other rivals – is a matter for debate.