Will Slack live up to its valuation?
Let’s simplify it a bit. Very late stage investors are looking for at least a 2x return on their money (they want more of course, but at least 2x. With some chance for 5x-10x. (Versus early stage investors are looking for at least 5x-10x with some chance of 100x). Softbank invested at $5b. So the simple question is …
So can Slack be worth at least $10b? (2x)
Well, let’s look at today’s $10b+ SaaS club. Who else is in it?
Atlassian is at an incredibly impressive $900m+ run-rate and still growing quickly. It may be cheap at $10.4b in fact.
Shopify is at an $800m+ run-rate and growing even more quickly and is worth $12.1b. Their relative valuations seem to make sense. Atlassian is a little bigger still, but Shopify is growing a bit faster, so probably should have a little bit higher of a valuation (which it does):
So the “simple” question for Softbank investing at $5b is — Can Slack be As Great or Greater of a Company than Atlassian and Shopify? And as it approaches $1b in ARR, can it grow as quickly?
That’s a very, very high bar. Very high.
But if Slack is at ~$300m in ARR today, and still growing close to 100% year-over-year — if you simply roll that model forward with modestly declining growth rates each year — Slack should be able to “easily” hit $1b in revenues and grow at Atlassian and Shopify-like rates at that point. Because the revenue recurs. This makes the modeling side much easier. And Slack is growing faster than either Atlassian or Shopify was at $250m-$300m in ARR.
A different way to look at this is when Workday was at $250m in ARR and IPO’d, it was growing 90% year-over-year. Fast forward 5 years, and Workday today is worth $26b, and Slack is growing faster. Workday is more enterprise than Slack (or Atlassian or Shopify), but from a revenue+growth perspective, that’s a strong comp.
So Softbank also has a clear comp in Workday at a similar ARR and growth rate that says in 5 years, Slack could be worth $25b+. That would be a 5x return in 5 years. That’s pretty strong, given the size and stage of the investment and the fund.
More here: https://www.saastr.com/workday-i…
So … investing has risk 🙂 But Slack at $5b seems like a good bet, a solid shot at 2x and a real chance at 5x. Recurring revenue after $250m in ARR with its growth rate makes it fairly easy to draw a line to $1b in ARR and a $10b+ valuation post-IPO (at some point at least).
With the main risk besides the economy in general being competition from the next generation.
Which makes sense. This is what Stewart Butterfield has always said the main risk is as well 🙂