Facebook Declined Funding Workplace Spinout Valued Over $1B

Workplace: A Potential Spin-Off from Meta

Initially developed as an internal communication platform mirroring Facebook’s functionality, Workplace has grown to encompass over 7 million users. This growth positions it as a key application for companies seeking to enhance internal communications.

Investment Interest and a Unicorn Valuation

Information has surfaced indicating that Facebook, prior to its rebranding as Meta, received offers from enterprise investors. These investors proposed spinning off Workplace as an independent startup, backed by substantial funding.

The potential valuation of a standalone Workplace was estimated at a “unicorn” status – exceeding $1 billion – according to sources familiar with the discussions.

Meta’s Strategic Considerations

However, these conversations did not lead to a deal. Meta viewed Workplace as a strategic asset, despite its revenue not reaching the levels generated by Facebook and Instagram advertising.

The importance lies in presenting a more diversified image to the public. This is crucial for navigating regulatory scrutiny and demonstrating Meta’s capabilities beyond social networking and advertising.

As one source stated, “It helps make Facebook [and Meta] look like an adult.”

Investor Focus on Enterprise Opportunities

Representatives from Meta and Workplace have declined to comment on the matter. The identity of the investors remains unclear, but they reportedly specialize in late-stage growth investments, specifically targeting enterprise-focused ventures.

Their interest in funding a spun-out Workplace arose during a period of increased activity in the private equity market.

The Rise of Private Equity in Tech Acquisitions

Last year saw a significant surge in private equity acquisitions of mature technology businesses. Firms like Thoma Bravo were actively raising capital – reportedly $35 billion – to pursue such opportunities.

Bloomberg data indicates that private equity acquisitions reached approximately $80 billion in 2021, representing a growth of over 140% compared to the previous year.

This trend continues into the current year, with PE firms increasingly approaching larger tech companies to explore spin-offs.

Recent Examples of Tech Spin-Offs

This strategy allows these companies to streamline operations and unlock capital from non-core or underperforming assets. A recent example is Francisco Partners’ acquisition of IBM’s Watson Health business for approximately $1 billion.

This demonstrates the growing appetite for acquiring and investing in specialized technology divisions carved out from larger organizations.

Establishing a SaaS Foothold with Workplace

Meta’s consideration of spinning out Workplace signifies notable developments on multiple fronts.

Corporately, discussions regarding the company’s potential breakup continue – the latest being the court’s decision earlier this month allowing the U.S. Federal Trade Commission to pursue a lawsuit potentially requiring the sale of WhatsApp and Instagram. Alongside this, an investigation into its VR division for antitrust concerns is reportedly underway. This situation presents a potential opportunity for some investors and shareholders, a dynamic Meta must carefully consider when evaluating the value of its assets.

For Workplace specifically, the division has reached a critical juncture in recent months.

Key Personnel Changes

Workplace has experienced departures of several key leaders, including Karandeep Anand, recently appointed chief product officer at Brex, and Julien Codorniou, now a partner at London VC firm Felix Capital. Additional personnel have also transitioned to new roles at other organizations.

The rationale behind these movements, as explained to me, was presented as natural turnover rather than a reaction to negative publicity surrounding Meta. The initial team, assembled to create Workplace, had successfully established the product and a clearer focus now necessitates fresh perspectives for the next phase of development. (In my assessment, Ujjwal Singh is a strong leader to guide Workplace forward.)

Despite reports suggesting employee morale may be affected by ongoing public criticism of Meta, Workplace hasn’t been entirely shielded from these impacts.

A significant deal with a major restaurant chain was reportedly paused last autumn due to negative news cycles and “reputational concerns,” with the customer requesting a delay in the announcement.

“Such occurrences are uncommon for other SaaS businesses,” one source commented.

This situation might have previously supported arguments for further distancing Workplace from Meta, potentially through a spinout. However, Meta appears to be pursuing a different strategy.

Workplace’s Evolution

Workplace has undergone substantial changes since its initial introduction.

Originally conceived as a “work” version of Facebook – leveraging internal communication patterns within Facebook itself – Workplace was launched in response to the growing popularity of platforms like Slack and other workplace chat applications. The premise was that Workplace possessed a distinct advantage given Facebook’s massive existing user base.

Introducing a new service targeting a different user base, with a paid, ad-free business model, also presented new revenue opportunities for the company.

This core strategy has largely persisted, even as Workplace’s focus has evolved.

Initially, the platform emphasized integrations with various workplace productivity tools, aiming to directly compete with Slack and Teams. However, Workplace unexpectedly gained traction among “deskless” workers who primarily interacted with their employers via mobile devices.

Consequently, Workplace’s current strength lies in serving as a communication app for both knowledge workers and deskless employees simultaneously.

“The approach is to allow customers to utilize both Teams or Slack and Workplace, rather than choosing one over the other,” a source explained. “Other platforms excel at real-time messaging for knowledge workers, while Workplace is optimal for asynchronous communication across all employee types.”

This guiding principle now shapes Workplace’s strategy, evidenced by recent integrations with Microsoft Teams and, announced yesterday, a new integration with WhatsApp, already widely used by frontline teams. Further integrations involving Meta’s VR business and the Portal device are also reportedly in development.

While official user numbers will be released later this year, sources indicate Workplace now has approximately 10 million users, including major global employers such as Walmart and AstraZeneca.

A Shift in Sales Strategy

Previously marketed as a standalone product, Workplace is now envisioned as part of a broader suite of services.

It will be offered alongside business messaging solutions, or integrated with Facebook login features, expanding Meta’s engagement opportunities with businesses. (The acquisition of Kustomer, the CRM startup, likely supports this broader enterprise sales strategy, though the deal remains pending.)

Rather than preparing to divest Workplace, Meta is now positioning it as a key component of a larger SaaS business. Whether it can capitalize on this opportunity as effectively as an independent company remains to be seen, though venture capitalists may still be interested should Meta falter.