On a day not long after we made our investment, a “little” company called Slack signed a definitive agreement to be acquired by the software giant Salesforce. The premium offered in the transaction was substantial—far above where Slack had been trading prior to any rumors.
Unfortunately for our partners at WMK, this development cut short our ownership in what we believed to be a highly underappreciated business—a rarity in today’s market.
Our thesis can be summarized as the following:
- Slack is building an undervalued, sticky, long-term user base.
- Slack has multiple upside levers that a quality leader/entrepreneur with serious skin in the game like Founder/CEO Stewart Butterfield can unlock.
- The market’s obsession with near-term – rather than long-term – growth created a reasonable entry point.
What is Slack?!
Even Slack has struggled to fully articulate what it does. I first came across it during my MBA, where it was used by students across the globe to communicate and collaborate in real time.
At its core, Slack is a messaging tool that allows organizations to centralize communication—both broad and team-specific—into searchable, integrated channels. It becomes not only a communication platform but also a repository of organizational knowledge and workflows.
Slack’s value is reflected in how much people use it—and more importantly, how they rely on it. It drives real efficiency. As one marketing executive put it, “I can drop into any channel and see what’s happening. I don’t have to interrupt anyone or call a meeting to get updated.” This level of transparency and fluid communication enables faster decision-making and greater organizational agility.
But here’s the catch: Slack only works well if everyone uses it. That makes it a harder sell—but once it’s embedded, it’s incredibly difficult to displace. That’s a powerful combination of friction and stickiness.
What do we like about Slack?
We look for businesses with understandable competitive dynamics, clear value propositions, durable customer relationships, strong stakeholders, and compelling valuations. Slack checked those boxes.
As I spoke with people across industries, it became clear Slack had become more than a tool—it was becoming a verb, often replacing email in daily workflows. From scrappy startups to major institutions, users expressed deep attachment. When I asked if they could ever leave Slack, the response was near-universal: absolutely not. That’s the definition of a sticky business.
Slack’s financial model was compelling. Existing customers tended to increase their spending over time. Gross margins were excellent, allowing cash generated from operations to fund ongoing growth without relying on shareholder dilution. Slack was a rare tech business that already produced real cash—and showed signs of producing much more as it scaled.
Slack was led by founder Stewart Butterfield, a proven entrepreneur known for his transparency, consistency, and ability to attract talent. His leadership gave me confidence—he understood both what Slack was and what it was not, which is a subtle but essential distinction. He brought the kind of executional discipline, clarity, and vision we look for in the leaders of our businesses.
We look for businesses with understandable competitive dynamics, clear value propositions, durable customer relationships, strong stakeholders, and compelling valuations. Slack checked those boxes.
As I spoke with people across industries, it became clear Slack had become more than a tool—it was becoming a verb, often replacing email in daily workflows. From scrappy startups to major institutions, users expressed deep attachment. When I asked if they could ever leave Slack, the response was near-universal: absolutely not. That’s the definition of a sticky business.
Slack’s financial model was compelling. Existing customers tended to increase their spending over time. Gross margins were excellent, allowing cash generated from operations to fund ongoing growth without relying on shareholder dilution. Slack was a rare tech business that already produced real cash—and showed signs of producing much more as it scaled.
What are the risks?
COf course, the story wasn’t perfect. Slack’s user growth wasn’t as eye-catching as some other “work from home” darlings, leading to concerns in the market. But we viewed this as a sales cycle issue—not a demand issue. Slack’s onboarding requires organizational commitment, which takes time but creates stronger long-term retention.
Another concern was Microsoft Teams. As a bundled product within Microsoft’s ecosystem, Teams gained rapid adoption. But Slack and Teams serve different customer needs. Teams fits best in traditional environments tightly integrated with Microsoft tools. Slack, with its open-ended integrations and flexible architecture, is better suited for companies focused on innovation and external collaboration.
That disconnect—between who uses Slack and who analyzes it—created a unique opportunity. Many decision-makers at investment firms weren’t Slack users themselves, which may have contributed to the market mispricing.
What is Slack worth?
Slack isn’t a business you can value with perfect precision. But our analysis suggested the market was underestimating its potential. We believed any one of several outcomes—accelerating customer growth, stronger cash flow conversion, or product-led expansion—could materially increase its value over time.
The combination of a long growth runway, multiple ways to win, and proven leadership made it a compelling addition to our portfolio.
While fairly valued on many metrics when making the investment, I expected Slack to exceed market expectations from any of three obvious value levers:
- Better than expected growth trajectory as Slack brings on an accelerating number of large customers.
- Better than expected FCF conversion as internally funded growth accelerates.
- Continued extensions of Slack that could provide revenue upside and further “stickiness.”
The combination of multiple avenues to win as an owner as well as having a proven leader with an owner-operator mindset led to WMK’s investment.
It is worth noting that businesses like Slack are very long duration investments. They benefit from a long-time horizon, low interest rates and the growth of businesses who rely on SaaS products. These types of businesses are a portion of WMK’s targeted portfolio, but do not represent the only type of business we seek to own. We love our boring cash cows that are undervalued by the market as well.
Wrapping Up
Slack was a long-duration asset, well-suited to benefit from a low-rate environment and a broader shift toward SaaS tools in the digital workplace. While such businesses are part of our strategy, they’re not the whole story—we also love our steady, undervalued “boring” businesses.
This investment serves as an important reminder: outcomes don’t always confirm whether an investment was “right” or “wrong.” Many cited the Salesforce acquisition as proof that we underestimated the risks. Maybe we did. But we made the investment based on a clear thesis and a belief that the market undervalued a business growing slowly—but growing right.
Had Slack remained independent, I believe it would have outperformed the acquisition price and continued compounding value for years. That said, Salesforce is likely one of the best homes for Slack—and the premium offered was hard to ignore. We exited the position, as we had no interest in owning Salesforce at its current valuation.
The Slack story isn’t over. I’ll continue to follow the business under Salesforce’s umbrella and reflect on how our decisions can improve. In the meantime, we remain focused on deploying capital into high-quality businesses with long-term return potential—regardless of how “exciting” or “boring” they may appear.
Disclosures:
The views expressed above are those of WMK Investment Partners. These views are subject to change at any time based on market and other conditions, and WMK disclaims any responsibility to update such views.
Past performance is not indicative of future performance. Principal value and investment return will fluctuate. There are no implied guarantees or assurances that the target returns will be achieved, or objectives will be met. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal. The values and performance numbers represented in this report do not reflect management fees.
WMK may discuss and display, charts, graphs, formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions. To the extent that certain of the information contained herein has been obtained from third-party sources, such sources will be cited, and are believed to be reliable, but WMK has not independently verified the accuracy of such information.