When will Slack, the fast-growing enterprise chat app, go public? Will the environment of easy VC money in the private markets dry up? Slack CEO and Co-founder Stewart Butterfield addressed these questions at an entrepreneurship panel at CES last week.
Butterfield addressed the question of how much pressure there is on Slack to go public. “I guess there’s not a whole lot of pressure on us right now because we started selling 23 months ago, so no one has the expectation that we go public. It wouldn’t makes sense for us to go public anyway because we’re growing too fast. Right now it wouldn’t.”
“I think the minimum amount of time would be a year and a half because there are a couple of missing ingredients for us. We just did our first audit, for example,” continued Butterfield.
“There are a lot of controls you have to put in place, a lot of people you have to hire, but also we just don’t have the kind of predictability to the business that we would need in order to not get screwed in the public market. There is no real incentive for us to do it in the short term, and there is no reason to rush that.”
The Slack CEO also talked about the broader pressure for some of these heavily-funded private companies to go public. “In terms of pressure overall, there are companies that are ready and there are companies that are not ready.”
“There’s people like Bill Gurley who have been saying for a couple of years now that ‘We’re in a bubble. It’s going to pop.‘ And then you look at the companies that Benchmark is invested in, Snapchat and Uber. I don’t know that Snapchat would be ready to IPO right now, but a lot of people think that Uber is,” said Butterfield.
“I don’t think they are in any rush because if you can raise a billion dollars at a time on the private markets, there may be some discipline that you could enforce on yourself by going public, or there might be liquidity for people who aren’t going to get it in those private-market funding environments, but there’s not a whole lot of reason to go out and go public when you can raise hundreds of millions of dollars at a time,” said Butterfield.
In Butterfield’s opinion, the environment of easy VC money and high valuations in the private markets is one that is going to dissipate slowly. “That window might be closing. It’s going to be awhile before it can close because so much money went into the VC funds over the last 3 or 4 years, and they can’t just not invest that,” stated Butterfield.
“If you are a partnership that would have in 2010 raised a $400 million fund and in 2013 you raised a $1.2 billion dollar fund, but you have the same number of partners and the dynamics of VC haven’t changed, and you do the same number of deals, valuations have to stay up because you have to invest more in each deal.”
“There’s no other exit, no other escape valve for the constraints in that formula. So there will be another XX tens of billions of dollars invested over the next couple of years because no VC fund is ever just going to go back to their LP’s and say ‘You know what, I couldn’t invest 75% of this fund and here’s your money back,’ he concluded.
“It takes a long time for that to shake out of the system. Even if every LP in the world tomorrow said ‘VC, this is insane. I don’t know what the hell is going on.’ It’s going to take 8 years for that to flush out.”