Slack, the popular workplace collaboration and communication tool, debuted in public markets in a big way. Coming via an unconventional direct listing, the company’s share price closed 49 percent above the $26 reference price and 225 percent above its last private funding round ten months ago. Whether this performance is more attributable to the S&P reaching record highs, the appetite investors have shown for enterprise SaaS companies, or just the popular product that is Slack, one thing remains – Slack is now worth over $23 billion.
This event is important for two big reasons. First, direct listings reward employees and private market participants (both private investors and secondary market buyers) with something traditional IPOs don’t – no lockup period. Typically, shareholders are forced to wait for six months before they can sell their shares, the obvious risk being a decrease in share price at that time, either because of something company-specific or broader market movements. Slack shareholders had no such risk. That said, holders of the company’s may not choose to sell, but the option to do so could be highly valuable – something evident in the chart below. Based on the various prices paid for Slack shares over the years, selling today may have resulted in realizing significant gains.
The second reason worth noting is what Slack’s performance today could mean for other unicorns considering a direct listing, including home-sharing giant Airbnb. While we’re still in the early stages, the limited volatility and general success seen today makes a strong case for the viability of direct listings. It’s important to remember that this type of public offering wouldn’t work for every company, but for those with the requisite characteristics, Slack and Spotify have shown it is certainly something to consider.
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