I have no access to Slack’s financials — but it’s simpler than it sounds.
As a rough rule of thumb, these days, hyper-growth SaaS companies tend to burn at least $1m for every $1m in ARR in their hyper-growth phases. Then burn decreases after the hyper-growth phase.
If Slack is at $300m ARR now, and wants to get to $600m ARR in 12 months … which is crazy growth … then at least budgeting for a $300m loss is fairly common IF you can raise the capital.
Add in say $200m for losses the following year, and a $500m war chest for 24+ months doesn’t sound so crazy.
Of course, you don’t have to spend this much 🙂 And I don’t think Slack is spending this much. My guess is they are spending at about half this rate. This isn’t Stewart Butterfield’s first job. He’s carefully thinking through all of this, at least, as much as you can at this crazy rate of growth.
But the $1 burn for $1 in ARR if you are growing > 100% YoY is a “comfort level” of burn that investors are happy to fund. At least in 2017–2018.
And at least until you don’t grow at that rate.
