[throwaway5752]

I follow a public company that reported earnings recently, is in a fragmented multi-10-billion segment, has fundamental patents in it's field, and has 9-figure revenue. They have a valuation 1/10 of Slack's. I have no beef with Slack, but the valuation seems completely detached from fundamentals, or reality for that matter. I'm not hating, I hope all the founders & early contributors do great and never have to work again... but it is a high valuation.

[peterjancelis]

Remember that VCs buy preferred equity that can limit their downside (1x liquidation preference at least, maybe a preferred dividend).

The company you follow sells common stock to its shareholders.

[fizx]

Slack's margins have the potential to be absurd. Their market is potentially all businesses. Investors have some downside protection.

[inthewoods]

I'm not sure those two mean real downside protection - but your point is correct - the VCs are betting on the very small chance that Slack is actually adopted by a huge number of businesses. Right now I'd guess it has a fairly narrow adoption among leading edge companies and SF/Valley natives. I'm sure there are exceptions to this - or maybe they truly have moved beyond that core audience and that's what is driving the valuation.

But that's what VCs do - make a large number of bets that will fail and one that blows it out the park.

Their valuation is a reflection of the growth in Slack's business - meaning they have strong enough growth that they can command that kind of valuation on a huge raise. It is also like a reflection on the limited number of companies that have that kind of growth.

But these kind of valuations also create a high-wire act for the companies in my experience. Growth must be maintained at all costs to justify the valuation. They spend like they're going out of style because of this.