Storm Ventures

There’s no shortage of talk lately about frothy private company valuations, particularly when it comes to enterprise companies. Slack Technologies, the company behind the increasingly popular enterprise messaging platform, is the current poster child. Less than six months ago, Slack raised $120 million at a billion-dollar-plus valuation that many found stunning. Now, Bloomberg says it’s talking with investors about a round that would value it at more than $2 billion.

Very notably, Slack is growing at a torrid pace. As of mid February, it reportedly had 500,000 users, a number that had grown by 35 percent in just the first six weeks of this year. In fact, Jason Lemkin, a managing director at the early-stage, enterprise investment firm Storm Ventures, seems to think Slack is probably worth every penny at a $2 billion-plus valuation.

“No one is dumb in Silicon Valley,” he argues. “Early-stage investors are rolling the dice on hypergrowth and betting companies like Slack will be decacorns” worth more than $10 billion one day. “These crazy valuations, generally in [business-to-business companies], are associated with crazy growth.”

Lemkin notes, for example, that Slack is growing faster than the enterprise social network Yammer — and that Yammer grew faster than the online file sharing company Box. Both are success stories. Yammer, founded in 2008, sold to Microsoft for $1.2 billion in 2012. Box, founded in 2005, went public in January and is currently valued at nearly $2 billion.

But in both cases, their rates of adoption can’t touch what newer startups are seeing, says Lemkin. “[Today’s crop of leading enterprise startups are] growing their month-over-month revenue by mid-teen percentages. And after they hit a million dollars in revenue, that’s a lot of compounding.”

A variety of factors explain such accelerated growth, says Lemkin, including that the adoption of new business-to-business technologies often trails business-to-consumer adoption by three to five years. “That means lot of verticals are just getting ‘webified’ today, including doctors’ offices, e-discovery for regular people,” along with lots of other small and mid-size companies that are realizing what they can gain from the power and low-maintenance needs of hosted systems.

Lemkin also points to the growing piece of CIOs’ budgets that are being spent on SaaS products rather than traditional on-premises technology. Instead of buying their own servers and storage systems, companies are now buying both as a service — along with enterprise analytics, security, and more.

“You only need a few more percent of that roughly trillion dollars in enterprise budgets to create, say, 40 more Workdays,” says Lemkin, referring to the cloud-based HR and finance technology company that went public in 2012 and is now valued at more than $16 billion.

It’s not an outrageous estimate. Global SaaS software revenue is reportedly expected to reach $106 billion by next year, an increase of 21 percent of projected spending levels this year.

Indeed, while industry observers fret over soaring valuations, Lemkin says it’s those enterprise startups with monthly revenue growth in the single digits that should be doing some hand-wringing. While “you’d have gotten funded in days a couple of years ago, today, no one is going to take a meeting with you.”

Slack is “sort of [the standard that] everyone wants now,” he says.

Tae Hea Nahm, a founding managing director of the early-stage firm Storm Ventures, was born in Seoul, Korea, and he still spends at least one week in the country every quarter. He goes to attend startup board meetings. He visits with Samsung and with some of Storm’s LPs, including Korea Telecom. Nahm, who has also cofounded four mobile companies — including MobileIron, which filed to go public yesterday — also seeks out new ideas on these trips. We talked yesterday about what he sees.

You’re in Korea more often than most U.S VCs, I’d imagine.

Well, I’m Korean, so visiting is relatively easy for me. It also helps me with my mobile investments in the U.S. People who invest in digital advertising look at startups in Silicon ValIey and New York; I feel that Silicon Valley and Korea are naturally synergistic in the same way when your primary [focus] is in on mobile.

Where do you look for trends?

I like to ride the subway in Seoul to get an idea of what people do. In New York, for example, most people are listening to music on their mobile devices or maybe reading a Kindle or something because connectivity on the subway is very poor. In Seoul, about a quarter of people on the subway are streaming a drama or sports show on their iPads or Galaxy Notes because they have the Internet infrastructure to do it.

Mobile video is really going to take off here, too. It’s why a huge investment is being made by Samsung and Apple to create higher resolution displays. It’s why, on the other side, content video providers like Amazon and YouTube and Netflix expect more people to watch their content over mobile devices. It’s also why one company we started in Korea that optimizes your mobile video session across multiple wireless networks is doing very well.

Other than gaming, where else has Korea gotten a jump on the U.S.?

An example I saw and didn’t take advantage of are credit card readers. Many years ago, a taxi driver who picked me up basically scanned and processed my credit card with a cellular reader that was like a bigger form of Square. Kakao, the messaging platform, also took off must faster in Korea than messaging took off here in the U.S. In that case, it was mostly driven by cost. In the U.S., the savings of using free messaging here is less compelling than in Europe or Korea. But it also just fits in with human nature.

How hard is it to separate out what’s an early indicator of a big trend, versus something that might be popular specifically because of the culture?

It can be difficult. I email with my wife a lot, but in Korea, a husband and wife would rarely email each other; dating back at least 10 years, they’d text each other because email is considered slow and formal whereas texting is faster and spontaneous. There, I felt like texting was more cultural, and my initial assumption was incorrect.

Are so-called ephemeral apps interesting to the Korean market?

Yes. There’s a company in Korea, Between, that allows you basically to just create a private social network between two individuals, and either individual can terminate the whole conversation and all the content stored. It’s like a private communication locker, versus a Snapchat, where it’s just a private message.

Would you try to bring it to the U.S or incubate something similar? You’ve incubated several companies here in the past.

I’ve started companies like Airespace [acquired by Cisco for $450 million in 2005] where I was the founding CEO and hired the first 24 employees, and MobileIron, where I hired the first three founders. At the same time, we don’t want the reputation of ripping off entrepreneurs’ ideas, so we don’t just form clones.

Also, the problem in [recreating an idea] is whether the founders you hire will really be passionate about the idea. Passion for their idea is what makes entrepreneurs so special. If I have the belief and desire and the executive team doesn’t have it, it doesn’t work.

There must also be major differences in the way things are marketed. What are some of the biggest ways the markets in Korea and the U.S. continue to differ?

Korea is a very small homogenous country, so if five people believe something, everyone will believe it, whereas because the U.S. is so big and diverse that word of mouth is much less powerful. Westeners also like things that are more realistic; Asians like things that are more cartoonish.

And Koreans like tutorials; they like to go through manuals to teach themselves how to become power users. Americans hate them. They like to push buttons and get results. I don’t know if Apple brainwashed them or understood them, but American users don’t want to read anything.

Sign up for our morning missive, StrictlyVC, featuring all the venture-related news you need to start you day.

Storm Ventures

Jason Lemkin on the “Slack” Effect

MobileIron Founder Tae Hea Nahm on the Korea Connection