Weekly Wrap #31: Deep Thoughts on Slack, Doing Deals and DeepMind AI Solves Drug Discovery

Welcome to our Weekly Wrap, where we cut through the noise to bring you our favourite insights from the technology and startup world. What a week it’s been!

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Slack attack

CRM giant Salesforce is buying Slack. Dwarfing all of its previous deals, Salesforce will pay US$27.7 billion for the workplace chat app in a mix of stock and cash. Here’s the low down:

Why would Salesforce want Slack?

Salesforce’s founder, Marc Benioff has for a long time envisioned having a Salesforce messaging and collaboration app. Salesforce tried to launch its own app (Salesforce Chatter) in 2009, which it ultimately retired in 2018. Salesforce also considered acquiring Twitter in 2016.

Ultimately though, the acquisition brings Salesforce one step closer to competing with its archenemy: Microsoft. Salesforce bought Quip in 2016 to compete with Microsoft’s document collaboration suite (Word, Excel, PowerPoint). Now it’s buying Slack to compete with Teams chat.

Slack aims to put itself in the middle of your communication workflow. By integrating with almost every product an organisation uses (e.g. dev tools such as Bitbucket, GitHub; file storage services such as Google Drive, Box, Dropbox; project management tools such as JIRA and Zendesk; and social media platforms such as Twitter), Slack becomes the central place you go for chat, but also alerts, to share docs and to search.

Ripe for the taking

Being a remote work-enabling tool, you would have expected Slack’s revenue and share price to skyrocket over the pandemic. But it hasn’t. Revenue growth has been modest (see below vs Zoom) and its valuation fairly stable. In fact, until now, the highest Slack’s share price has ever been was on its first week of trading on the NYSE in June 2019.

Credit: Chuck Ganapathi

Why no crazy growth? When faced with the decision of which tech to adopt to enable remote working across their organisations in March/April, many CIOs opted to stick with the tried, trusted, bundled Microsoft suite (i.e. Teams, which is free with Office) and abandon the standalone, comparatively pricey app that pockets of teams had chosen to adopt on their own (i.e. Slack).

If Slack’s growth didn’t go bananas during lockdowns, it probably never will. So an acquisition by a monolith is a great exit option. Especially considering Slack has no clear path to profitability.

The end of bottom-up sales?

Slack’s growth plateau has prompted a new school ‘bottom-up sales’ vs old school ‘enterprise sales’ debate in the SaaS world.

In the traditional B2B sales world you invest resources heavily in selling direct to decision makers (the C-Suite). Slack’s bottom-up sales strategy means investing in building great product to encourage end-user adoption, with the aim of viral infiltration. If you haven’t read it already, check out the Slack ‘We don’t sell saddles here’ pre-launch memo.

On the one side you have Box CEO Aaron Levie commenting:

The idea that workers would someday choose all their own tools was always a fantasy... The reality with the enterprise is that you can have the best product, but that’s not good enough. You need distribution.

PayPal Mafia, Yammer founder, investor and godfather of bottom-up sales, David Sacks ultimately agrees with that sentiment:

Bottom-up is still the best way into enterprises for startups [and] works best for new categories of software… but you still need a sales team to close. Enterprises don’t self-serve. This was a central learning of Yammer. Slack eventually got this right but the initial anti-sales mentality did cost them some time.

Both are bullish on the acquisition.

Wall Street says no

Since rumours of the announcement were leaked, Salesforce’s market cap has lost more value than the transaction is worth. Slack is up around 48% from its valuation before the deal was known, driving up the sale price. Wall Street likely considers Salesforce overpaid for the acquisition.

Slack shower thoughts:

  1. Atlassian may be the quiet winner in this deal. In 2018 it sold HipChat/Stride to Slack in exchange for stock and cash, and the parties agreed to tighten integration between Slack and Atlassian’s products. Win win.

  2. Slack founder Steward Butterfield also founded Flickr, which Yahoo bought for $25 million. Flickr and Slack (f.k.a. Glitch) both started life as a gaming company. What’s Butterfield’s next gaming company?

The acquisition is a great result for Slack and it shareholders, and it could prove to be a very smart move by Salesforce. Fingers cross Salesforce lives up to its promise to let Slack remain independent and doesn’t destroy the user experience.


Australia & NZ: News that caught our eye this week 🧐

Kogan is acquiring NZ-based Mighty Ape for AU$122 million. Mighty Ape is one of NZ’s most popular online shopping sites with more than 690,000 unique customers and 895,000 subscribers. The company has over 160 staff and its own purpose-built distribution centre in Auckland. The purchase price is a splash more than the value of the controversial ‘retention’ options issued to its CEO and CFO on Monday.

Nuix, Booktopia and Cashrewards listed on the ASX. Nuix’s $1.8 billion float saw it raise around $950 million plus $677.4 million for a sell down, making it one of the most profitable deals in Macquarie’s history (amazing work by Dan Phillips and David Standen). On opening day of trading, Nuix shares closed up 50.9% at $8.01. Booktopia’s IPO raised $43.1 million, with a market cap of $315.8 million. Shares jumped 25% on its first day. Cashrewards made a modest gain on first day, raising $65 million at IPO, with market cap of $136.4 million.

Paralympic gold medalist and tennis grand slam winner Dylan Alcott launched a fresh-meal-delivery startup tailored to people with disabilities, Able Foods. The company is also bringing more people with disabilities into the workforce - every Able Foods employee either has a disability, or has lived experience of disability.

21 year old Sydney-born Ben Pasternak made the Forbes 30 under 30 list. His startup, Simulate, makes Nuggs, a vegan version of nuggets. Pasternak explains “Chicken nuggets are already integrated into internet and meme culture. It's easy to create a fun brand around it.” On the hunt for a nostalgic procrastination station? Look no further than the Nuggs snake game.

Catch Group founders are about to launch their latest and greatest startup, Little Birdie. Little Birdie is a site that “aims to be the internet's front page for online shopping”, centralising products then sending consumers directly to a brand’s site (eg ASOS, Lego, Adidas, Apple, Samsung, Nike). Stay tuned. Also, check out the brothers’ book, Catch of the Decade.

Atlassian is leading the way with climate change. It will slash business air travel and lean on suppliers to reduce emissions as part of its aim to be carbon neutral by 2050. MCB’s quote of the week:

And if they’re spending $500 million a year on sustainability, shit, I spent more than that last year. And I’m not BP. So let’s talk about ambition in real terms. [*mic drop*]

Afterpay’s US sales have surpassed Australian sales for the first time. Klarna had a big board shakeup, with some big names pulling up a pew, including Sequoia’s Michael Moritz as chair.

HUGE week in ANZ capital raising 🤑

Corporate learning startup Elenta raised a $1 million seed round after launching in June through Antler Australia’s accelerator.

Flotespace the ‘Airbnb for boat experiences’ raised capital from Airtasker founder and CEO Tim Fung. Flotespace is a concierge service for boat and yacht rentals.

Pearlii, a world-first dental app for check-ups, raised $1.25 million. The app (available free in Australia - try it!) scans a user’s dental photos to check for common problems such as tooth decay and gum disease, and generates oral health advice based on the findings.

Particular Audience closed a $1.8 million round. Its B2B ecommerce tech personalises product lists and promoted items, depending on the consumer. It also launched its first consumer product, Similar, a browser plug-in that shows shoppers if they could get a better deal elsewhere.

Buildxact closed a $6 million round, with backing from Aconex co-founder Rob Phillpot (jumping on board with Leigh Jasper). Buildxact creates quote and job management software for residential builders.

Prospecta closed its first $20 million raise from Ellerston. The 18-year-old company helps enterprises govern and manage their “master data”, with customers such as Visy, Dow Chemical, Optus, Mondelez, Fortescue Metals Group and Inghams.

BNPL Limepay raised $21 million in a ‘pre-IPO round’. Limepay is seeing quarterly growth of about 250%, with underlying merchant sales hitting $95 million per day on a seven-day annualised run-rate.

OneVentures now has $500 million under management, after closing the first $75 million tranche of its fifth fund.

Punakaiki Fund’s 2020 Retail Offer is open. The NZ VC’s portfolio includes Timely, Raygun, Vend, Conqa, Once It, Boardingware and Mobi2Go.

News from around the world ($ = USD) 🌏

Shopify’s Black Friday Cyber Monday stats broke all records. No surprises there, but the numbers are impressive nonetheless. From 27 - 30 November:

  • Total sales of $5.1+ billion from more than one million Shopify-powered brands around the world (up 76% from last year)

  • 44+ million consumers globally purchased from independent and D2C brands powered by Shopify (up 50% from last year)

  • Consumers in Japan ($106.40) and Australia ($105.50) spent the most on average

  • Shopify offset all carbon emissions from the delivery of every order - nearly 62,000 tonnes

Amazon wants to build an empire, we want to arm the rebels@tobi

Stripe is now offering a banking-as-a-service API - Stripe Treasury. Stripe’s customers (e.g. Shopify) will be able to embed financial services in their platform and provide bank accounts to their customers, so they can hold funds, pay bills, earn interest and manage cash flow. Combined with Stripe Issuing, they can also issue a virtual or physical card and connect it to a bank account. Their product velocity is outstanding.

Google AI offshoot DeepMind has solved one of the biggest life science challenges: protein structure prediction. It would vastly accelerate efforts to understand the building blocks of cells, disease and enable more efficient drug discovery. According to Andrei Lupas, an evolutionary biologist:

This will change medicine. It will change research. It will change bioengineering. It will change everything.

The extension trend. It used to be the general rule of thumb that high growth startups would raise capital every 12 months. But in this frenzied environment we’re seeing an increasing number of startups raise capital several times in a year - either as ‘extensions’ or entirely new rounds. UK challenger bank Monzo raised £60 million in funding, following a £60 million raise in June. Welcome, HR software that helps organisations make and close offers to new candidates, announced a further $6 million raise following a $1.4 million round in August. AgentSync, an insurtech startup, announced a $4.4 million funding round in August. This week it announced a further $6.7 million in a ‘seed extension’. But don’t forget these raises still need to be backed up by solid traction. In the case of AgentSync, revenue has grown 4x since March to an estimated $4 million ARR.

Damn it feels good to be a banker: M&A deals

Facebook is buying Kustomer, which specialises in customer-service platforms and chatbots, at a deal estimated to be worth $1 billion. Clearly Facebook is all in on its B2B ‘social commerce’ play. Consumers are increasingly communicating with companies by messaging instead of calling. Facebook/Instagram/etc are an easy way for businesses to have an online presence without the hassle of a website. Kustomer takes conversations from different channels and puts them on a single screen.

For Facebook, its “customer relations” profile up to now has been about users within its app walls. This gives it a much bigger opportunity to essentially control that bigger picture and bigger relationship, regardless of the platform being used.

Vista Equity Partners, which likes to purchase undervalued tech companies and turn them around for a big profit, is buying Gainsight for $1.1 billion. According to Forbes, Gainsight, which makes customer success software, was on track to reach “about” $100 million ARR by the end of this year, meaning it was valued it a revenue multiple of 11x (considered fairly low in the current market).

Lightspeed (Canadian based cloud-based point-of-sale software) is buying Upserve (Restaurant Management Software) for $430 million. Vista Equity Partners is also an investor in Upserve.

Airbnb is asking for a valuation of up to $35 billion in its IPO. Best tweet:


That’s a wrap! We hope you enjoyed it.

Gavin, Bex and the team at Ignition Lane

www.ignitionlane.com

p.s. We love feedback - if you have any or want to continue the conversation, please reach out. Watch Gavin live on AusBiz at 2pm on Mondays, when he opens the Startup Hour of Power.