Even by Silicon Valley standards, Slack CEO Stewart Butterfield is a master of fundraising. The cofounder of tech’s buzziest office-messaging app raised so much—$1.27 billion over the last decade—that when Slack went public Thursday, Butterfield used a rare direct listing, a process that doesn't actually raise new capital. Instead, the Slack direct listing made investors’ and employees’ stakes more liquid without diluting those shares, which would happen in a traditional IPO.
That’s good news for Slack’s early investors, a who’s who of software and social media founders set to score major payouts when their early stakes transformed into publicly tradable shares through the listing, which was expected to value the San Francisco-based company at a reported $16 billion (UPDATE: On its first day of trading, Slack shares opened at $38.50, 48% higher than its expected price, giving it a market cap of about $20 billion.) The 46-year-old Butterfield, who once called it “irresponsible” not to take investment when the dollars came cheap, lived up to those words when he, cofounder Cal Henderson and two former Flickr colleagues went to raise money in 2009 for the app’s earlier iteration, the fledgling gaming company Tiny Speck.
Years before the two founders hit up powerhouse venture capital firms like SoftBank, they tapped influential friends, mostly tech founders: LinkedIn’s Jeff Weiner; Stripe’s Patrick and John Collison; Squarespace’s Anthony Casalena; Twitter’s Biz Stone; Yammer’s David Sacks; and Jeremy Stoppelman of Yelp. They all took stakes in seed or early rounds that were worth an estimated 16 to more than 1,600 times their original bet.
Slack was far from alone in courting other founders as backers. From Airbnb to Uber, Postmates and Pinterest to Stripe, high-valued tech companies are likely to have an overlapping, but ever-changing, group of their unicorn CEO peers as personal investors. The checks, often between $25,000 and $100,000, are votes of confidence and solidarity—mixed with some wealth management and “FOMO protection.” But they also speak to a broader trend in Silicon Valley of the increased power of the entrepreneur. And their relatively small networks of the same people illustrate how Silicon Valley continues to enrich a select group of successful leaders—a wealth effect that both accounts for the region’s enduring hold on startup formation and the homogenous nature of its founders, who are still usually white men.
Social Network Stars Cash In
At an anticipated market cap of $16 billion, Slack would give LinkedIn CEO Jeff Weiner, Twitter cofounder Biz Stone, Path cofounder Dave Morin and other early investors returns of 1600 times their initial capital. Each $25,000 they invested would now be worth about $40 million.
“It’s Silicon Valley’s greatest strength and Achilles heel,” says Margaret O’Mara, a professor at the University of Washington who has studied the modern history of Silicon Valley. “You have people who are winners from the previous generation picking winners from the next. And by their mentorship, they give these companies a leg up. The virtuous cycle, or vicious cycle, depending on how you look at it, goes again and again.”
Slack’s angel investing story dates back to before Butterfield and Henderson abandoned their game-making plans to build an enterprise software tool. In their first round of funding, led by Accel and including Andreessen Horowitz a decade ago, Weiner, Stone and ex-Facebook executive and Path founder Dave Morin invested at a valuation of just about $10 million. Casalena, Stoppelman and the Collison brothers joined in Slack’s Series C led by Social Capital. By then Slack was worth $220 million post-investment. Sacks, who later led Zenefits and is now a full-time venture capitalist, invested in an additional round that valued the company at $1.1 billion later that year.
At a market capitalization of $16 billion, Weiner, Stone, Morin and others were set to enjoy returns of 1,600 times their initial capital. At just a $25,000 check, each would be sitting on shares worth about $40 million. Casalena, Stoppelman, and the Collisons would be on pace for returns of 73 times their money—or $1.8 million for each $25,000 they may have invested. And even investments made at Slack’s $1 billion round would be good for winning returns worth 16 times the stake.
Slack was expected to have a valuation of $16 billion when it started trading Thursday, according to the Wall Street Journal. It ended its first day of trade much higher, more than twice its valuation as of its last funding round in 2018. And while Slack isn’t issuing any new shares or raising money from the listing, its holders like Butterfield and its investors were likely to benefit from a first-day pop further boosting its stock, as happened in recent months with the IPOs of enterprise software companies Zoom (up 81% in its first day), PagerDuty (up nearly 60%) and most recently CrowdStrike up (70%). Butterfield’s approximate 7% stake in Slack is now worth $1.6 billion.
Part-Time Unicorn Pickers
Squarespace CEO Anthony Casalena, Yelp CEO Jeremy Stoppelman, and Stripe founders Patrick and John Collison backed Slack in 2014 and would hold stakes worth 73 times their money at a $16 billion market capitalization—or $1.8 million for each $25,000 they put in.
Butterfield, through Slack, declined to comment. Weiner, Stone and Morin did not respond to requests for comment. Stoppelman, through Yelp, and Patrick and John Collison, through Stripe, declined to comment. A Squarespace representative confirmed Casalena’s investment but declined to comment further.
CEOs endorsing the next generation of startups dates back to the 1970s in Silicon Valley, when Apple’s founders took money from Intel’s Mike Markkula alongside venture capital firm Sequoia. Sacks straddled several generations of investors in his career from “PayPal Mafia” member (he joined the payments company now valued at nearly $140 billion as COO in 1999) to CEO and founder of Yammer, the messaging platform bought by Microsoft, then to CEO of embattled startup Zenefits, before becoming a full-time venture capitalist at Craft Ventures. When Sacks backed Facebook, it had its share of angel investors—CEOs of now-forgotten hotshot tech companies like Digg, Buddy Media and Curiosoft—but it was more common for companies to raise money from founders who’d already exited their companies. Now, with tech companies staying private longer and secondary sales providing entrepreneurs with some liquidity along the way, more unicorn CEOs have money to invest.
Founders like when their investors have been through similar experiences, says Sacks. While startups still often take money from a venture capital firm when they can, many leave a minority of the total investment open to such individuals, hoping they’ll offer a more sympathetic ear mixed with firsthand tactical chops. “It speaks to the rise of power of the entrepreneur relative to finance-background investors,” Sacks says.
Scott Belsky, chief product officer at Adobe and an investor in billion-dollar tech companies including Carta, Flexport, Pinterest, Uber and Warby Parker, agrees. When Belsky was working on his previous startup Behance, which Adobe eventually acquired in 2012, Garrett Camp, then the CEO of StumbleUpon, personally invested. When Camp started Uber, he returned the favor, offering Belsky a chance to invest. (Of course, both Sacks and Belsky stand to profit from the continuation of such a trend.)
The chance of a fat payout is nice, but investing in other startups also scratches a curiosity itch. Box CEO Aaron Levie, who is one of tech’s most prolific active-CEO investors with more than 30 investments including Gusto, Instacart, Robinhood and Stripe, says he invests to broaden his perspective beyond the walls of Box, the enterprise company he took public in 2015. “When you spend 14 hours a day on something for 14 years, you get blinders on, and it’s nice to be able to see what is also going on in the world,” Levie says. As such, Levie prefers to invest in businesses that are often in areas of tech other than enterprise software and his day-to-day job at Box.
The downside of entrepreneur investing circles: They’ve tended to keep wealth circulating among Silicon Valley’s unofficial leadership—white, privileged and male. There are early investor exceptions. Troy Carter, a former Spotify exec who founded entertainment management company Atom Factory and is African American, invested in Slack and Uber. Ann Miura-Ko of venture capital firm Floodgate, a Midas List honoree, invested early in ride-hailing app Lyft. But founders historically underrepresented in tech haven’t had as many exits with which to fund the next generation, and the early investments in today’s unicorns were made years ago. Next decade’s angel winners are likely to look at least somewhat different from today’s, boosted by the efforts of specialized investing groups such as #Angels and Portfolia. #Angels, which was cofounded by April Underwood, Slack’s former product chief, has launched events and commissioned research on the imbalance, which the group calls “#TheGapTable.”
As such angel networks proliferate and more founders and CEOs from underrepresented backgrounds achieve financial success, angel investing could, coincidentally, provide a solution. Since angel investors don’t have the rules or mandates about what they can invest in as do funds that answer to institutional backers, they can be more purposeful in investing in themes or underrepresented ideas and groups. Tina Sharkey’s experience backs that up. When she started e-commerce company Brandless, she made a point of taking money from a range of female leaders, including Nextdoor cofounder Sarah Leary, #Angels investor and former Twitter executive Katie Stanton, Mindy Grossman of WW International and, more recently, tennis star Serena Williams. “It’s an opportunity to have different types of power,” says Sharkey, who has made more than a dozen angel investments herself.
At Glossier, the beauty startup valued at $1.2 billion, CEO Emily Weiss says she’s invests in entrepreneurs in other areas of tech like healthcare and enterprise software. More than half her angel investments are in female-led businesses. “Angel investing is my own small contribution to changing the ratio,” she says.