A former Slack board observer says there was 'no hesitation' about its unusual public offering, and she thinks Slack's successful direct listing will encourage more startups to do it (WORK)
- On Thursday, popular workplace chat app Slack went public via a direct listing.
- Spotify is the only other startup to directly list on a US stock market instead of opting for the traditional IPO process.
- According to former Slack board observer and Index Ventures partner Sarah Cannon, there was "no hesitation" among Slack's board when discussing a direct listing in 2018.
- Cannon explained that a direct listing made the most sense for Slack's leadership team because they valued innovation and transparency, and she thinks more companies may follow Slack's lead.
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When Index Ventures signed on to Slack's $160 million Series E funding round in 2015, the popular workplace chat app was already one of the hottest startups in Silicon Valley.
But on Thursday it also became one of the hottest startups in a new category: a directly listed public company.
Online music company Spotify made waves when it decided to go public via direct listing in February 2018, but Slack's board of investors already knew it would pursue a similar path when the time came for the fast-growing company to make its own debut.
"There was no hesitation that this was the right path for Slack," former Slack board observer and partner at Index Ventures Sarah Cannon told Business Insider on Thursday. "There was only one precedent, which was Spotify, so it was really brave of [Slack CEO] Stewart [Butterfield] to pursue it. There were a lot of risks because it hadn't really been done before."
A direct listing bypasses the traditional process that accompanies a public offering, and allows the shareholders in a startup to sell directly to the public on an exchange.
"A direct listing is more transparent to the public more so than the traditional route with investment banks and underwriters because a much broader set of people have access," Cannon said. "It democratizes the process."
Shares of Slack began trading Thursday at a price that was more than 50% higher than the $26 per share "reference price" that had been expected. The stock finished its first day of trading at $38.62. Cannon described the team's energy on the trading floor Thursday as "pure enthusiasm," and credits the leadership team's commitment to values as integral in the decision to pursue the direct listing.
"It's a philosophical choice, and the two driving factors were that Slack is an innovative and transparent company," Cannon said. "It's not surprising to me as a board member that this is the route they choose, because it is core to the product to be transparent and those were the guiding philosophies behind that decision."
Part of Slack's successful debut, according to Cannon, is that the brand was recognizable enough for the general public to want to purchase stock. It was also helpful that the company didn't need to raise money as would be the case in an IPO, she said.
"I imagine you will see more direct listings in the future, because as you have more of a sample set of these listings, more will consider it an option," Cannon said. "It's not right for everyone though because you need cash on your balance sheet and not have to need to raise money. You also need brand awareness so consumers are aware of the company and want to actually buy shares."
Although Cannon is no longer on Slack's board of directors, she insisted growth was still a priority for the company as it endeavors to become profitable and satisfy its public shareholders.
"When we invested four years ago, we invested because they were creating a category that didn't exist," Cannon said. "How we work is fundamentally changing. Growth is a priority for the company and as investors we are quite excited about the unit economics."
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