This open source messaging startup raised $50 million to take on Slack and Microsoft Teams and rope in customers who care a lot about privacy

Mattermost

On Wednesday, the messaging app Mattermost announced it closed $50 million in series B funding.
Mattermost is an alternative to Slack and Microsoft Teams, and what makes it different is that it’s available as open source and allows customers to control where and how their data is stored.
Mattermost CEO Ian Tien explains how his company pivoted from a gaming company in Y Combinator to a messaging app that is now used by customers like Uber and NASA.
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Slack’s $17 billion direct listing, expected this week, is not the only sign that the market for workplace messaging tools is booming.

Mattermost, a messaging app designed for businesses with serious pivacy and security needs, announced a $50 million funding round on Wednesday, roughly four months after scooping up its first, Series A round of funding.

"Given all the press Slack has gotten and Microsoft is in the market too, there’s an assumption that this space is spoken for, but it’s still in the early days," said Ali Rowghani, a partner at Y Combinator, which is leading the Mattermost funding round. "I think we’ll realize this market is a lot bigger than we thought it was."

Mattermost’s software is open source, meaning that the code is free and available for anyone to use, download or modify. Customers choose where they want to store their data, like their own private data centers and servers, rather than a third party system.

Already, Mattermost has customers like Uber, Samsung, the U.S. Federal Reserve System, and NASA. In 2017, Uber ditched HipChat to build its own messaging system uChat off of Mattermost.

Until this year, Mattermost had mostly run without funding and instead, on its own revenue. And even before that, it relied on open source contributions from over 1,000 people, who volunteered to write code and translate the product.

"We’re available in 16 languages because people volunteered to help us translate," Mattermost CEO and co-founder Ian Tien told Business Insider. "We really had to engage our community and influence them in working together to something that was valuable."

In February, Mattermost closed $20 million in a series A led by Redpoint, and just four months later, it announced it closed $50 million in a series B on Wednesday. This round was led by Y Combinator Continuity in its largest series B investment, with participation from Battery Ventures. In total, Mattermost has raised $73.5 million.

"We were let down by a collaboration platform that was mission critical"

Before joining Y Combinator, Tien worked at Microsoft, where he didn’t own a single line of code for anything the company built, since he worked on proprietary products. He decided to start a company because he wanted to have an impact.

"At Mattermost, the huge difference is our developers use their personal GitHub accounts to build. 95% of what we do is open source and it’s for the community," Tien said. "If you’re an engineer and you have the chance to work in an open source community and share your work back with the community, once they love open source and love the idea, they can’t go back."

Mattermost wasn’t always a messaging app though. In summer 2012, Mattermost started as a gaming company called SpinPunch at Y Combinator, a Silicon Valley startup incubator. Tien says things didn’t work out for the team as a gaming company.

The team would communicate using HipChat, which Slack bought from Atlassian in 2018. Tien recalls that HipChat would keep crashing, and when the team decided to leave Hipchat, they couldn’t access any of their old data.

"We were let down by a collaboration platform that was mission critical to us," Tien said.

The team hacked together its own messaging software, and they made the project open source. That’s when it started taking off. Now, it has over 10,000 downloads a month.

Eventually, they created a licensed version with features for larger companies to use, like single sign-on, management and governance features.

Who’s using Mattermost

Mattermost’s customers tend to be more privacy conscious, Tien says. He says customers trust Mattermost because they can manage where they store the data and how the data is encrypted. Also, since it’s open source, companies can see every line of the code.

"The simple way of thinking about is people who can’t use Slack but don’t like Teams," Tien said. "People who can’t use Slack are people who need a level of trust and security that’s in line with internal policies…Mattermost becomes the most trusted platform for collaboration because you can self manage it. You can read every line of source code. There’s no back doors."

What’s more, they can verify that the data is being encrypted the way they want. With third party applications, like WhatsApp, customers have to trust that their data is encrypted, Tien says.

"With Mattermost you don’t have to trust us, you can look at how it’s set up for yourself," Tien said.

Still Mattermost is compatible with Slack and also has the core features of Slack. Users can import Slack messages and can even incorporate Slack theme colors.

Not a "winner-take-all"

Initially, Tien says, many investors didn’t grasp the potential of the open source business model. Things changed when they saw the success of startups like GitLab, Elastic, and HashiCorp, as well as major acquisitions like IBM acquiring Red Hat and Microsoft acquiring GitHub.

They also became interested when they saw the market for messaging collaboration, Tien says.

Y Combinator’s Rowghani says he was initially impressed with Mattermost’s traction with customers. And he notes that Mattermost’s open source model fosters innovation and makes it easier for developers to adopt.

Although Slack and Microsoft Teams are the 800-pound gorillas in the messaging space, there’s plenty of room for innovative companies like Mattermost, he says.

"We feel like enterprise communication and particularly messaging is a really big space," Rowghani says. "It’s not going to be a winner-take-all with Slack taking the entire market. It was pretty clear in learning about the company and doing diligence, bigger companies are security conscious."

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Source: Business Insider – rmchan@businessinsider.com (Rosalie Chan)