July 12, 2017
Holden Page is a Crunchbase News editor and columnist.
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A successful workplace collaboration startup, one that helps teams communicate, share files, and manage workflows, can have significant impacts on how you do your job. However, despite their impact, venture funding for workplace collaboration tools is on the decline. That’s true even after accounting for the breakout success of category players such as Slack, Asana, and Dropbox.

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That downward trend is bucking the overall positive year venture capital is having. However, 2017’s tide of funding is apparently not enough to raise all sectors. Although, there is some chance the sector may redeem itself by the end of the year.

Money Doesn’t Collaborate

Out of the six startups in the Q2 2017 cohort that raised funding, two startups walked away with the majority.

The largest haul came from Smartsheet, an advanced spreadsheet application that allows you to manage and automate work tasks, with its $52 million Series F. The company is now considered an emerging unicorn, according to the Crunchbase Unicorn leaderboard.

But even with a round that could birth a new unicorn, funding into workplace collaboration tools was only a little over $113 million in the second quarter of this year.

It’s not a number to ignore. However, when compared to Q1 2017, which saw a total raise of nearly $281 million, it disappoints. As the chart below shows:

The data shows steep variability between quarterly results, with some quarters pushing sky-high while other quarters lag sharply. Accounting for the over $100 million discrepancy between Q1 and Q2 of 2017 were two startups: Fuze and Zoom.

In Q1 2017, Fuze, a video messaging application for teams, raised a $104 million Series E round—nearly matching the $112 million Series D raise the company announced in Q1 2016. To date, the company has raised a little over $330 million.

Meanwhile, Zoom, another video conferencing solution, raised a $100 million Series D round, led by Sequoia Capital, in January 2017. With its last fundraising, the company vaulted onto the Unicorn Leaderboard.

Taking a look further back, Q2 2017 performance appears even more wearisome when compared to its quarterly counterpart in 2016.

Q2 vs. Q2

Workplace collaboration startups pulled in slightly over $258 million in Q2 2016—two times the amount of funding Q2 2017 accrued. Additionally, Q2 2016 set a record high for the number of deals made in the space, while Q2 2017 set a record low by the same metric.

But the dichotomy presented between the two quarters balances out when outsized rounds are taken into account.

Slack, the popular enterprise messaging application, raised a whopping $200 million Series F in Q2 2016. This whale of a raise single-handedly propped the Q2 2016 cohort. Without it, Q2 2016 would be the worst performing quarter in the sector over the time period we graphed, with only $58 million raised, spread across 24 companies.

Q2 2017 also looks a bit more positive in the light of acquisitions. Here are few from the space that occurred during the quarter:

Based on reported acquisitions prices, Q2 2017 beat out Q2 2016 by $262 million thanks to Aurea Software’s $462 million acquisition of Jive Software, a collaborative intranet provider. The acquisition of Jive Software also superseded Atlassian’s $425 million purchase of the project management software company Trello in Q1 2017.

Workplace Collaboration May Redeem Itself In The End

By the second quarter of 2016, workplace collaboration startups raised over half a billion across 47 rounds. Thus far in 2017, the sector has only managed to raise approximately $393 billion across 19 rounds.

However, while mid-year 2017 funding totals may fall short when compared to the same period a year ago, it’s worth noting 2016 only managed to pull in a total funding haul of $759 million. Assuming 2017 keeps at its same pace of funding, or a unicorn raises another large round, this year could beat 2016 in total funding by approximately $20 million. But if the remaining two quarters of 2017 follow the same pattern of diminished deal sizes shown by Q3 and Q4 2016, 2017 will fall under 2016 funding totals.

While workplace collaboration tools have received large funding amounts in the past, 2017 shows that it’s quite possible that sector has lost its luster to investors. However, startups such as Zoom, the new unicorn in the bunch, could raise another large round before the year is out.

Illustration: Li-Anne Dias