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The popular team-focused messaging service still favors a direct listing, according to the Wall Street Journal, and could allow its shares to begin trading publicly in the June-July timeframe. For those keeping score, the Journal also reports that the New York Stock Exchange instead of the Nasdaq.
What does any of that mean, and why do we care? Let me walk you through it.
Why does it matter that Slack is pursuing a direct listing over a traditional IPO?
A direct listing is different from a normal IPO in that the company jumping the fence from the private markets to the public doesn’t sell a new bloc of shares. Back when money had a cost, IPOs were often important fundraising vehicles for companies looking to continue growing.
Slack has had access to all the money it could ever want while private, and more. Indeed, it was reported that Slack had $900 million in cash on hand last year. That’s so much that it makes little sense for the SaaS giant to raise more in an IPO; why dilute yourself when you don’t need the money?1
There’s been talk (and I’ve been on the wrong side of this debate a few times) that direct listings don’t really save a company money in fees, making the IPO-alternate a bit silly; but in Slack’s case, I would bet $1 that it’s avoiding dilution more by pursuing a direct listing than it is hoping to save a few million while going public.
The above situation is a facet of the unicorn era that we currently live in, a period in which Slack could wind up with $900 million in cash on its balance sheet. That figure is as much to Slack’s credit (good job being capital efficient!) as it is a joke about investors (what are startups today, corporate foie gras?).
Why do we care that Slack is floating its shares at all?
Two main reasons. First, it’s a huge chunk of liquidity for its investor list (here). And second, it’s a benchmarking moment for unicorns. As the first reason is self-explanatory, let’s explore the second.
Slack has long been a leading member of the unicorn club. Its nigh-insane revenue growth has made it a media and startup darling. Its public debut, therefore, will be a big deal. And it will be a big do for Slack and startups that are similar in terms of how they generate revenue. Software-as-a-service companies, better known as SaaS shops, will see how much they could be worth if they grew faster, and were more capital efficient when Slack does begin to trade.
The Slack direct listing is, therefore, not a benchmarking moment for companies in the middle of its market. Instead, if Slack’s S-1 looks the way that it’s expected to, its debut could set ceilings for SaaS companies. Your company will never be worth more than this much per dollar of recurring revenue, and so forth.
It’ll be fun for everyone but the overvalued.
Alex, it’s another unicorn debut, aren’t you tired of these yet?
Illustration Credit: Li-Anne Dias
If you get the joke here, four points!↩
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