- This is the story behind how Accel made more than a $4 billion return on investment from Slack
Back in 2011, Stewart Butterfield was running a company called Tiny Speck that was building a browser-based massively multiplayer online game called Glitch. Tiny Speck had raised about $11 million to build the online adventure game — which featured bizarre actions like petting a plant to make it grow, milking butterflies, squeeze chickens to receive grain, and nibbling on pig’s ears.
Butterfield and the team spent two years and raised $11 million building the game, but it did not gain enough traction to become mainstream. So Butterfield wanted to give back the remaining money back to investors.
However, Andrew Braccia — a general partner at Accel — did not want the money back. Instead, Accel wanted Butterfield to keep the remaining $5 million to build on a different idea, according to Bloomberg. This decision paid off because Slack was born.
Braccia strongly believed in Butterfield’s ability to pivot since the last time he made a flop led to the creation of Flickr (acquired by Yahoo for $25 million in 2005). Google VP of Product Bradley Horowitz also refused to take his investment back when Butterfield’s chips were down. Braccia, Butterfield, and Horowitz had worked at Yahoo! together.
Horowitz credited Braccia to convince Butterfield to keep going and told Bloomberg: “Stewart could have told me he was building a new coat hanger… I would be all in.”
Slack — which is an enterprise collaboration chat platform — went public last month. Accel ended up investing around $200 million in Slack over seven years primarily due to Braccia’s faith in Butterfield.
When Slack went public, Accel held a 24% stake in the company — which is considered the largest venture firm stake in a newly public unicorn company in recent history. Accel’s $200 million investment in Slack became worth more than $4.5 billion.
Trae Vassallo, a managing director at Defy, pointed out in a Bloomberg interview that it is unusual for a venture capital firm to own such a large stake in a rapidly growing startup. As a startup grows, the founders and other investors compete intensely for shares in the company. And when a startup is struggling, exposing a fund to one company becomes extremely risky. “They don’t all look like winners right away,” said Vassallo (via Bloomberg).
According to CB Insights, the failure rate for startups is 67% and only 1% of those achieve a unicorn valuation of over $1 billion.
“You have to have a clear conviction when making a concentrated bet,” added Bessemer Venture Partners partner Byron Deeter (via Bloomberg). “If you’re right, you’ll be disproportionately rewarded. But if it goes bad, there’s a real risk.”
Butterfield told Bloomberg that Accel was interested in buying into every funding round for Slack and they offer to invest more than expected nearly every time. Slack ended up raising more than $1.2 billion in funding before going public.
Featured image credit: Stewart Butterfield via Slack
