Slack Technologies, the workplace messaging and collaboration platform, will be making its public market debut on June 20, 2019. This liquidity event will be different than the blockbuster IPOs of 2019 to date, as the company is pursuing a direct listing in lieu of a traditional Initial Public Offering. While Spotify, the Swedish music-streaming company, was broadly successful in its direct listing last year, there are still significant risks in pursuing that route. Characteristics for a direct listing include:
As a private company, Slack has raised over $1.3 billion in primary funding from investors including SoftBank Group, Accel Partners, Andreessen Horowitz, and Kleiner Perkins. In fact, Slack will be the first enterprise software company exit for SoftBank’s Vision Fund. One factor that could impact the reference price the financial advisors set the day before its listing may be the recent pricing trends in secondary markets. According to the data presented in its S-1 filing, recent secondary trades in Slack have valued the company at nearly $12 billion – an over 70% increase to its last primary funding round in August 2018 which valued the company at just over $7 billion. While there are, of course, a plethora of factors that will likely drive the company’s share price once it starts trading, it appears secondary market participants have seen increasing value in what the company has to offer.
As a first mover in a budding industry, Slack benefits significantly from a strong position in what could become a large market. However, as the company continues to grow, we would monitor both its ability to capture large enterprise customers to fuel growth from existing competitors, as well as new entrants, which could substantially impact the company’s profitability and growth prospects.
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Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative, involving a high degree of risk, and investors should be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and investors should conduct their own, independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or investment advice.
Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.
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