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Stewart Butterfield’s Slack Closes $120 Million Funding Round, With A $1.12 Billion Valuation

Slack CEO Stewart Butterfield
Slack CEO Stewart Butterfield

After denying only a week ago that work productivity SaaS platform Slack was on the verge of raising an epic round of funding and valued at over $1 billion, founder Stewart Butterfield responded with a cheeky tweet and a quick denial in Business Insider.

The rumours weren’t true, he insisted, and yet they continued to swirl. Slack would be raising money “sometime in the next six years”, he tweeted, adding “(Crack reporting, btw.)

So it came as an anticlimactic surprise yesterday to learn that Slack’s valuation is now $1.12 billion and that the company has raised $120 million in a round co-led by Kleiner Perkins Caufield & Byers and Google Ventures, with a surprising assist from Yammer founder David Sacks.

In addition, John Doerr, general partner of KPCB, and M.G. Siegler, general partner at Google Ventures, will join Slack’s board of directors as observers.

All this a mere eight months after Slack raised $43 million from Andreessen Horowitz, Accel Partners and The Social+Capital Partnership, and less than a year after publicly launching the product.

The growth of Slack is unprecedented, even by Silicon Valley standards.

Asked by Fortune for the motivation behind the fundraising, Butterfield says, “part of it is a hedge against what could happen over the next couple of years, even though we had a ton of money on the balance sheet,” adding, “We don’t have any significant competition and want to get out far ahead now.”

He also mentions that Slack has just hired its first marketing person, “but he doesn’t begin until next week.”

To have come as far as Butterfield has with Slack in less than a year is quite an accomplishment. “Remember, we only started working on this in January 2013, went into beta that August and launched publicly in February of this year,” he says. “The growth has been completely insane and almost entirely on word of mouth.”

Being from the sleepy Pacific community of Lund, British Columbia, raised by hippie parents and surrounded by descendents of Swedish immigrants and Salish First Nations, Butterfield was oddly very well prepared for the cyber-utopianism of Silicon Valley.

Through a combination of studying philosophy at the University of Victoria, with a special fascination for Spinoza, as well as an obsession with jam band Phish, actively participating in the rec.music.phish online community, Butterfield arrived on the technology scene relatively well-formed enough to slide directly into the business of disruption long before that term became as almost meaninglessly buzzy as it is today.

After building a much-loved and sadly defunct online game called Glitch, Butterfield went on to develop photo sharing platform Flickr, which he sold to Yahoo in 2005. Then after slogging it out unhappily working for Yahoo for the next three years, Butterfield turned his attention to Slack in 2009, the intention of which is to kill email as a driving impulse behind workplace stasis and status quo behaviour.

Following a breathless, bordering on straight PR, profile in Wired magazine last summer, Slack has seen its numbers spike through pure word of mouth. It is currently used by over 30,000 teams who exchange over 200 million messages per month, at a cost of $7 per user for the paid version.

The paid version of Slack is used by over 73,000 users, adding over $1 million of annual recurring revenue per month to Slack’s balance sheet. If it stays on that trajectory, Slack will earn $10 million in ARR in 2014, setting a record for fastest SaaS company to crack that milestone.

Asked by Fortune what influence Butterfield’s less-than-fun experience of being acquired by Yahoo back in 2005 would play in whether Slack remains privately held, as opposed to prepping the company for an attractive exit, Butterfield is categorical. “It’s definitely an influence. Not just on me, but there are four other people working with me who were on the original Flickr team and it was very frustrating for all of us.”

“It’s not that Yahoo was bumbling, it was just too big,” he adds.

So presumably, we can look to Butterfield to stay at Slack’s helm for a long time to come and to keep the “small” ethos meaningful, as Slack transitions from giant-killer to giant itself.

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