Scores of start-ups worth more than $1 billion, known as “unicorns” in the industry, have gained substantial venture-capital funding in the last two years. Dozens have surpassed a $2 billion valuation. And several have passed the $2 billion in just two years.
Slack, the enterprise communication platform that’s taken on traditional email platforms, has become the fastest start-up company to reach a $2 billion valuation, according to data from financial information firm Pitchbook.
The platform, founded in part by Flickr co-founder Stewart Butterfield, got its start in 2009 as an internal platform for an online game called Glitch, but it ultimately failed in that first iteration. It relaunched in 2013 for external use, becoming the product Slack is today.
Slack is a cross-platform communication product for desktop and mobile. Slack creates a messaging and file-sharing tool for companies that feels more conversational than email.
“They hadn’t had too much success. So, they tried [Slack] for about four years. The product was a tool they had developed, among themselves, and they liked it so much that rather than pursue this gaming idea, they would produce what is now Slack,” said Mike Volpi, partner at Index Ventures and a Slack board member.
The possibility of Slack going public is unrealistic “in the short term,” Volpi told CNBC, but it may be a possibility in the future. “It’s still a young company,” he said.
Slack reported $12 million in annual recurring revenue in early February.
The San Francisco-based company has more than 200,000 paid users, and 750,000 people access the service daily, according to company records. Adobe, The New York Times and SoundCloud are among its users, and Slack employs about 130.
Smashes like Slack have risen so sharply in valuation partly because of the immediate, widespread availability of software. The cost of launching a start-up has also dropped.
The emergence of crowdfunding is another integral reason that valuable start-ups have recently grown exponentially, said Christian Catalini, professor of technological innovation, entrepreneurship and strategic management at MIT Sloan School of Management.
“There is a lot of investment by VC, angels and super-angel groups into a lot of new businesses. Many of these will fail, like during the dot-com bubble,” said Catalini.
Slack reached a valuation of $2 billion before the company’s two-year anniversary, at a rate faster than Twitter, Snapchat and Uber, according to recent PitchBook data.
The price of building a company based on software has gone down, said Efrat Kasznik, president and founder of Foresight Valuation Group, a Silicon Valley-based start-up advisory firm. Platforms such as Amazon Web Services have made launching companies, especially those, like Pinterest, that create a community, feasible for entrepreneurs.
“It’s easier to develop software, especially when you have good marketing and good traction,” said Kasznik, who is also a lecturer at Stanford Graduate School of Business. “You cannot grow so quickly in hardware.”
“There is so much pain in the workplace right now,” said Bill Macaitis, Slack’s chief marketing officer, because of the tedious nature of traditional email platforms. Slack is focusing on redefining the way companies communicate. Macaitis said just as he thinks of Uber as a “disruptor” in its industry, he thinks of Slack as a disruptor in the way of workplace communication.
“For Slack, there are 100 similar companies who didn’t make it,” said Kasznik. “You only see the ones who make it.”
Correction: Crowdfunding is named as one reason certain start-ups have grown exponentially. That was misstated in an earlier version of this article.
Rebecca Ungarino