Slack is 2016's hottest startup, but can it make the leap to huge companies?

Mamoon Hamid discovered Slack in October of 2013 when its CEO, Stewart Butterfield, happened to be on the board of another of his own investments. “That’s how we got exposed to Slack super early on,” said Hamid, a partner and co-founder at Social Capital. “Someone asked me if I had heard about Slack, and I first thought about Yammer. It was not long after Yammer’s exit, when it was acquired by Microsoft.”

Hamid had invested in Yammer. The Microsoft deal — it acquired Yammer for $1.2 billion in 2012 — was not ideal.

That made the timing of Hamid’s first investment in Slack — in early 2014 — seem off. The market had already pushed back against so-called “social enterprise” apps. While Slack, the cloud-based communication tool that’s the shiny, popular new workplace tool of the moment, was — and is — different, as Hamid said in an interview with Re/code in New York recently, it didn’t always seem so.

But Hamid, who sits on Slack’s board, has developed a knack for speculative deals: As a partner at U.S. Venture Partners, he led an investment in Box in early 2008 at a moment when file-sharing companies were multiplying like rabbits turned loose on a vegetable farm.

Slack, he said, has set itself apart in a market space that’s getting more crowded by the day, and it has big intentions.

Slack isn’t Yammer

For one thing, waiting for the right moment to strike was key — because the tech had to be in place for the office communication tool to be effective. “Yammer was built in a pre-mobile era,” Hamid said. “The Yammer mobile app was never used. [It] was a way to post things to people in the office, to say you’re grabbing lunch.”

The limited use-case scenarios meant that Yammer’s daily active users never went above 7 percent of a company, and never converted more than 15 percent of its customers from free to paid. By comparison, “When we invested in Slack, the daily use metric was between 35 and 40 percent,” while conversions — free users switching to paid accounts — were doing so at rates that were faster and at higher volumes than at Box.

“We had never seen anything like it,” Hamid says. “It was the asymmetrical information we needed to convince us to write our biggest check ever, which was for $25 million.”

Scaling up

Since 2013, Slack has become a bit of a wunderkind and gets a lot of buzz, but that buzz lies in its popularity with young tech and media companies. (Re/code’s parent Vox Media is a customer.) But to merit the investments it has secured — a combined $540 million at a valuation of nearly $4 billion as of this month — it will have to scale up suitable for use at large companies — something Hamid said is already happening. Of Slack’s Top 20 deals, he said, 10 are with Fortune 100 companies. And while Hamid couldn’t mention their names — Slack hasn’t disclosed some of its largest customers — the names of non-startups using it include the retailer Urban Outfitters, electronics giant Samsung and NASA, as in the U.S. space agency.

That said, there’s still work to do. Even at big companies, Slack tends to be used in individual departments, not across full corporations. That’s the next big step, the one that’s sometimes described by the wonky phrase “enterprise scale.”

“Slack wasn’t built with 10,000- or 100,000-person companies in mind,” Hamid admitted. “There are a lot of large companies that have dozens of Slack teams working internally. Now we want to take it to the master-company level, and there are a lot of challenges associated with getting a whole company on Slack. … It’s a priority.”

A similar case could be made for Box, another company Hamid has invested in: The cloud-storage company has to convert free customers to paid to be successful. “It’s similar,” Hamid said. “But at Slack, it’s faster and at a higher conversion rate than anything seen before.” A third of free users convert to paid, he said, a sign that the tool fills a need that existed well before it came along.

Competition and complements

When I lobbed a few possible competitors at Hamid, he batted them back handily, even as he insisted that he doesn’t dismiss any comer. Symphony is strong in finance, and has a potential early advantage in regulated industries like law firms and health care. “It dominates finance and wants to get into other regulated industries … We’ll get there ,too,” he said.

Atlassian has Hipchat, popular with software developers, though Slack is making inroads there. Networking giant Cisco Systems has Spark, which can scale quickly and can be packaged with WebEx, Cisco’s meeting app. “If I were to dismiss any of them, it would have to be Spark,” he said. “We just don’t see it” as a threat.

Meanwhile, Hamid has his eye on several other businesses in this workplace transformation space, and he as placed bets on them. Intercom tracks and records data on customer interactions as they decide if and when they’re going to buy a product. “It becomes a complete record of the customer relationship,” Hamid said. The long game leads it down a path that could challenge Salesforce.com.

Greenhouse, he said, is “becoming the de facto hiring tool for tech and media companies,” as it tracks job applicants; after they’re hired, it helps track the factors that keep them happy in the workplace.

Security startup Netskope tracks and regulates a company’s traffic across cloud applications, like Salesforce or Box, or even Slack, which in turn allows IT departments to set rules governing who has access to what. The potential there is high: The average Netskope customer already uses 90 different cloud applications, Hamid said. “That number isn’t going to shrink.”

No, it’s not. And if you like keeping track of things like Slack and how it and other companies are transforming how we work every day, you might like to attend our Code/Enterprise event on Nov. 15 in San Francisco. More details about that are coming soon.