With the general consensus that interest rates are finally set to move above zero in the U.S. by the end of the year, in what is likely to be a multiple step rate hike in the next couple of years, now is the ideal time for businesses to consider financing. In fact, some have gone so far as to say you’d be a fool to not borrow as much as you could possibly need right now as they’ll never be a better time to finance.
Last week’s fund raise by corporate messaging app start up Slack is case in point. The firm is growing rapidly, with over 750,000 daily active users (200,000 paying customers) in just a little bit more than 12 months. However, just a few weeks ago the company said it had enough money and was valued at around $1 billion, but the new deal selling 5% of the company for $160 million values the company at close to $2.8 billion. As Farhad Manjoo of the New York Times points out, the firm’s raise represents a record-setting increase in valuation for such a short period of time.
CEO of messaging app Slack explains recent fund raise
When Stuart Butterfield, the CEO of Slack, was asked why he chose to raise funds so soon after saying his form didn’t need money. “It’s pretty straightforward. I’ve been in this industry for 20 years. This is the best time to raise money ever. It might be the best time for any kind of business in any industry to raise money for all of history, like since the time of the ancient Egyptians. It’s certainly the best time for late-stage start-ups to raise money from venture capitalists since this dynamic has been around.”
He goes on to say: “And as a fiduciary, I think it would be almost imprudent for me not to accept $160 million bucks for 5-ish percent of the company when it’s offered on favorable terms.”
Butterfield on the possibility of a “tech bubble”
Butterfield also answers a question regarding the possibility that all of the recent fund rising in the tech sector could lead to a systemic problem. He replies: “Yes and no. As a citizen, I don’t think it would be a really bad thing in the end if all these investors lose a great deal of money, because it’s really not a very large percentage of the overall economy. I’m quoting Marc Andreessen here: The entire amount of V.C. funding that happened last year was $50 billion. That’s compared to the total market of share buybacks and dividends by public companies in the U.S. being $1 trillion. So it’s one-twentieth of the overall public market dynamics, which is a small percentage of the overall economy, so it’s not going to make a difference to most private citizens whether V.C.s lose a lot of money here.”