Bessemer Venture Partners' is proud to share The State of the Cloud for 2017. As the definitive guide to the biggest trends in the cloud industry, this year’s “State of the Cloud Report” includes:  1. A Look Back at 2016  - 2016 was a marquee year for a number of reasons. First, we all remember the rocky start in February where the Cloud Market dropped 35% - Subsequently, rebounded back to normal levels and ended the year up +15%. - The dip in the market had two main outcomes: First, it led to unprecedented amounts of M&A (4x more than any other year and 40% of the total cloud market cap of $300B) – and second, it led to the fewest number of cloud tech IPOs since the financial crisis. - A combination of these factors has led to the highest quality backlog of private cloud companies in history. The top 100 private Cloud companies alone represent over $100B of private enterprise value.   2. We provide a deeper look into the three top questions every private cloud CEO should be discussing with his/her executive team                 - How fast should I be growing?                 - How much should I burn?                 - How do I scale?   3. Bessemer’s 7 Predictions for 2017                 - The year of human assisted AI                 - APIs will serve as the backbone for a majority of software infrastructure                 - Architect for infinite scale without infinite spend                 - Mobile unlocks non-desk worker productivity                 - NPS everything                 - Diverse teams win                 - The screenless software movement

1. STATE OFTHE
CLOUD REPORT 2017Byron Deeter, Kristina Shen,Anna Khan
w w w . b v p . c o m / c l o u d

2. 2016
WOWZA
WHAT A YEAR

3. 3
Source: Uber

4. 4
Source: New York Stock Exchange

5. 5
Source: Make A GIF

6. 6
Source: Dean DeLisle, Blog Post

7. Source: 43 companies in BVP Cloud Index as of 02/01/2017. CapIQ
A ROCKY STARTTO 2016
BVP Cloud Index (1/1/2016 – 2/12/2016)
43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @
02/01/2017
50%
60%
70%
80%
90%
100%
110%
120%
1/1/2016
1/3/2016
1/5/2016
1/7/2016
1/9/2016
1/11/2016
1/13/2016
1/15/2016
1/17/2016
1/19/2016
1/21/2016
1/23/2016
1/25/2016
1/27/2016
1/29/2016
1/31/2016
2/2/2016
2/4/2016
2/6/2016
2/8/2016
2/10/2016
2/12/2016
BVP Index Nasdaq S&P Dow Jones

8. BVP Cloud Index (2/12/2016-2/3/2017)
43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @
02/03/2017
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ
...BUTTHE MARKET COMPLETELY REBOUNDED
IN 2H 2016
BVP Cloud Index (1/1/2016 – 2/12/2016)
43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @
02/03/2017
50%
60%
70%
80%
90%
100%
110%
120%
1/1/2016
1/3/2016
1/5/2016
1/7/2016
1/9/2016
1/11/2016
1/13/2016
1/15/2016
1/17/2016
1/19/2016
1/21/2016
1/23/2016
1/25/2016
1/27/2016
1/29/2016
1/31/2016
2/2/2016
2/4/2016
2/6/2016
2/8/2016
2/10/2016
2/12/2016
BVP Index Nasdaq S&P Dow Jones
50%
60%
70%
80%
90%
100%
110%
120%
BVP Index Nasdaq S&P Dow Jones

9. BVP Cloud Index
43 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 02/03/2017
JUSTA SMALL BUMP INA CRAZY RIDE UP!
50%
100%
150%
200%
250%
300%
350%
1/1/2011
3/1/2011
5/1/2011
7/1/2011
9/1/2011
11/1/2011
1/1/2012
3/1/2012
5/1/2012
7/1/2012
9/1/2012
11/1/2012
1/1/2013
3/1/2013
5/1/2013
7/1/2013
9/1/2013
11/1/2013
1/1/2014
3/1/2014
5/1/2014
7/1/2014
9/1/2014
11/1/2014
1/1/2015
3/1/2015
5/1/2015
7/1/2015
9/1/2015
11/1/2015
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
BVP Index Nasdaq S&P Dow Jones
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ

10. 0
5
10
15
20
25
30
35
40
45
50
2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of tech
IPOs on U.S. Stock
exchanges
Source: Bloomberg
*Tech IPOs less than $5MM are not included | *Listings for this year are through Nov 15
FEWESTTECH IPOS SINCE FINANCIAL CRISIS

11. company 2016-2017
$2.9B
$1.4B
$1.3B
$592M
$492M
company2015
$6.2B
$4.3B
$2.3B
$989M
$826M
$694M
$331M
$6.7B$15.6BTotal
Source: CapIQ
Total
TOTAL CLOUD
IPOS IN 2015-2017

12. company 2016-2017
$2.9B
$1.4B
$1.3B
$592M
$492M
company2015
$6.2B
$4.3B
$2.3B
$989M
$826M
$694M
$331M
$6.7B$15.6BTotal
5 OF 12 CLOUD
IPOSARE
BVP-FUNDED
Source: CapIQ
Total

13. M&A From 2009 to Today
4X MORE M&A 2016THANANY OTHER YEAR
$1,676 $2,279
$5,627
$13,708
$8,889
$14,921
$17,655
$60,713
$3,700
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: CapIQ

14. PUBLIC CLOUD COMPANIES 2009 – 2017
Source: CapIQ and public fillings.
Note: >$300BN market cap also includes 25 companies that are either public companies that are <$1bn market cap or large private acquisitions >$500m market cap.
Salesforce
LinkedIn
Workday
ServiceNow
Netsuite
Concur
Veeva
Atlassian
Ultimate Software
Athenahealth
Shopify
Ariba
Dealertrack
Successfactors
Appdynamics
Tableau
$59.9
$29.0
$21.1
$16.0
$9.3
$8.3
$6.2
$6.2
$5.9
$5.4
$5.2
$4.6
$4.0
$3.9
$3.7
$3.9
Xero
Taleo
LogMeIn
Marketo
Rightnow
New Relic
RingCentral
Omniture
Blackboard
Digital Insights
Cvent
2U
Responsys
Qualys
Blackline
Kenexa
$1.9
$1.9
$1.8
$1.8
$1.8
$1.8
$1.8
$1.7
$1.7
$1.7
$1.7
$1.6
$1.6
$1.6
$1.4
$1.4
>$300BN Market Cap
Proofpoint
Medidata Solutions
LogMeIn
RealPage
Demandware
Twilio
ExactTarget
Wix
Fleetmatics
Lifelock
CornerstoneOnDemand
Box
Skillsoft
Zendesk
Hubspot
$3.7
$3.3
$3.2
$2.9
$2.8
$2.7
$2.6
$2.6
$2.4
$2.4
$2.4
$2.3
$2.3
$2.3
$2.0
Coupa Software
Broadsoft
SPS Commerce
Constant Contact
Mindbody
Eloqua
$1.3
$1.3
$1.2
$1.1
$1.0
$1.0

15. 40% OF MARKET CAPACQUIRED
Source: CapIQ and public fillings.
Note: >$300BN market cap also includes 25 companies that are either public acquisitions <$1bn market cap or large private acquisitions >$500m market cap.
Salesforce
LinkedIn
Workday
ServiceNow
Netsuite
Concur
Veeva
Atlassian
Ultimate Software
Athenahealth
Shopify
Ariba
Dealertrack
Successfactors
Appdynamics
Tableau
$59.9
$29.0
$21.1
$16.0
$9.3
$8.3
$6.2
$6.2
$5.9
$5.4
$5.2
$4.6
$4.0
$3.9
$3.7
$3.9
Xero
Taleo
LogMeIn
Marketo
Rightnow
New Relic
RingCentral
Omniture
Blackboard
Digital Insights
Cvent
2U
Responsys
Qualys
Blackline
Kenexa
$1.9
$1.9
$1.8
$1.8
$1.8
$1.8
$1.8
$1.7
$1.7
$1.7
$1.7
$1.6
$1.6
$1.6
$1.4
$1.4
>$300BN Market Cap
Proofpoint
Medidata Solutions
LogMeIn
RealPage
Demandware
Twilio
ExactTarget
Wix
Fleetmatics
Lifelock
CornerstoneOnDemand
Box
Skillsoft
Zendesk
Hubspot
$3.7
$3.3
$3.2
$2.9
$2.8
$2.7
$2.6
$2.6
$2.4
$2.4
$2.4
$2.3
$2.3
$2.3
$2.0
Coupa Software
Broadsoft
SPS Commerce
Constant Contact
Mindbody
Eloqua
$1.3
$1.3
$1.2
$1.1
$1.0
$1.0

16. MORETHAN
MEETSTHE EYE
$400B Market Cap
Creation in Just the
Top 200 Companies
$180BN
Public
$129BN
Major Acquisitions
$104BN
Top 100 Private
Cloud Companies
~$400B
MARKET
CAP
Top 200 companies
1,000s of Private
Cloud Companies
Source: SLWA Blog

18. HUGE BACKLOG OF PRIVATE COMPANIES
>$100BN MARKET CAP IN CLOUD 100

19. HOW DO I
SCALE?
HOW MUCH
SHOULD I
BURN?
HOW FAST
SHOULD I BE
GROWING?
KEY QUESTIONS FROMTOP PRIVATE
CEOS

20. HOW FAST
SHOULD I
BE
GROWING?

21. To Kristina Shen

22. THE NEW
GROWTH
STANDARD?
8 YEARS TO $1B
Dropbox is the Fastest SaaS Company to
$1 Billion Revenue Run Rate

23. Years from $1M to $10M ARR
HOW DOTHETOP CLOUD COMPANIES PERFORM?
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs
ARR(in$M)
Source: CapIQ, internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR.

24. $0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs
ARR(in$M)
Years from $1M to $10M ARR
HOW DOTHETOP CLOUD COMPANIES PERFORM?
Source: CapIQ internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR.

25. $0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
1 2 3 4 5 6 7 8 9 10 11 12 13 14
$ARR(inM)
Years
YEARS FROM $1MTO $100MARR
Source: CapIQ, internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR. Note: Assuming it takes 24 months from founding to $1M ARR if do not have actual data.

26. YEARS FROM $1MTO $100MARR
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
1 2 3 4 5 6 7 8 9 10 11 12 13 14
$ARR(inM)
Years
5.3 yrs
Top 25%
Source: CapIQ and internal sources. Includes 46 public or recently acquired public companies from the BVP Cloud Index. Excludes companies who reached $100M ARR prior to public reported periods.
Note: Assuming it takes 24 months from founding to $1M ARR if do not have actual data. Use quarterly revenue times four as a proxy for ARR.
Public Cloud Companies
7.3 yrs
Median
10.6 yrs
Bottom 25%

27. From $1mm ARR
BVP GROWTH BENCHMARK
BEST
GOOD
BETTER
Yearsto$10MARR
Yearsto$100MARR
3Years
7Years
4Years
10Years
2Years
5Years

28. HOW MUCH
SHOULD I
BURN?

29. DEFININGTHE EFFICIENCY SCORE
% Annual
Revenue
Growth
Rule
of 40 +=
% Profit
Margins

30. DEFININGTHE EFFICIENCY SCORE
% Annual
Revenue
Growth
Rule
of 40 +=
% Profit
Margins
* Burn defined as FCF for this analysis
% Annual
CARR
Growth
Efficiency
Score += % Burn*

31. SHOPIFY 2013
GROWTH-DRIVEN
EFFICIENCY SCORE
Power
112% -4% 108%
% Burn*% Revenue
Growth
=
VEEVA 2013
FCF-DRIVEN
EFFICIENCY SCORE
Power
62% 19%
% Burn*% Revenue
Growth
+ =
MULTIPLE
SUCCESSFUL
MODELS OF
EFFICIENT
GROWTH
81%
+
* Burn defined as FCF for this analysis

32. DIFFERENT EFFICIENCY SCORESAT DIFFERENT STAGES
Source: 43 companies in the BVP Cloud Index, CapIQ
Note: Average efficiency score of the 43 public cloud companies. Efficiency score defined as % annual CARR growth + % FCF margin.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Prior IPO – 3Y IPO – 2Y IPO – 1Y IPO IPO + 1Y IPO + 2Y IPO + 3Y
73%
TIME
56% 53%
45%
38% 35% 32%

33. THE BVP EFFICIENCY RULE (>$30MARR)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EXPANSION
($30-60M ARR)
%CARRGrowth+%FCFMargin
70%
50%
30%
IPO
(~$100M ARR)
PUBLIC
($150M+ ARR)

34. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
%Rev.Growth+%FCFMargin
70%
50%
30%
EXPANSION
($30-60M ARR)
IPO
($60-100M ARR)
PUBLIC
($100M+ ARR)
?
THE BVP EFFICIENCY RULE

35. THE BVP EFFICIENCY RULE (<$30MARR)
BVP Efficiency Score
Net New
ARR
Net Cash
Burn
>
1
For Example:
$10
$25
($10)
Ending ARR Net Burn
($ in M)
$15M
(= $25- $10)
$10M
= 1.5
BVP Efficiency Score
2016 2017

36. HOW DO I
SCALE?

37. CUSTOMERACQUISITION COST
CAC PAYBACK
CAC
PAYBACK
PERIOD
(months)
TOTAL S&M COSTS
LAST QUARTER
= NEW CMRR ADDED
LAST QUARTER
X
% GROSS MARGIN

38. CAC COCKTAIL
CAC
COCKTAIL
FORMULA SALES
# of AEs
Quota
Inside sales
Field /enterprise sales
Ramp time
Inside sales
Field sales
Attainment rate
$400k-$800k
$1-1.5m
1-3mo
6-9mo
70-90%
LEAD/OPPORTUNITY
GENERATION
# of SDRs
Opportunities/SDR/month
Close rate
Marketing Spend
(% of Total S&M)
Inside/field sales model
Freemium/internet sales
15-25
15-30%
25-33%
33-67%

39. Find the model that works for you
UNDERSTANDING YOUR SALES MODEL
SMB EnterpriseMidmarket
12 Mos 18-24 Mos3-6 Mos
AVG ACV
CHURN /
UPSELL
CAC
PAYBACK
$12 - $50K<$12k $50K+
1% Monthly<3% Monthly
<1% Monthly,
Upsell

40. MULTIPLEWAYSTO BE SUCCESSFUL: UPSELL
MAJOR DRIVER
12 Mo CAC Payback, 100% Retention 24 Mo CAC Payback, 115% Retention
Note: Assumed 80% gross margin, and no other expenses.
Revenue
Cash Flows (Gross Profit – S&M)
S&M Costs
Year 1 Year 2 Year 3 Year 4Year 1 Year 2 Year 3 Year 4
$10
$8
$0
$10 $10 $10
$8
$16
$24
$10
$8
$16
$12
$1
$13
$12
$15
$24Result in same cash
flow after 4 years

41. 2017 PREDICTIONS

42. ADVANCES INAIAREAWESOME

43. ...BUT STILL
DEPENDENT
ON HUMANS.

44. THE YEAR OF HUMANASSISTEDAI
SECURITY
Estimated 1mm unfilled
cybersecurity jobs available
SALES & MARKETINGCUSTOMER SUPPORT
50% of customer service
agents failed to answer a
consumers questions
HEALTHCARE
#1
$12.8B per year on sales
acceleration technology
40% of healthcare providers
are expanding IT budgets

45. Mapping
Payments
Communication
(Messaging/Voice)
Email
SSO
Customer
Engagement
Storage
Enterprise Search
Files
Background Check
Collaboration
IaaS
User Management
Identification
Social
AI
Banking
Location
HealthcareSecurity/Fraud
Test/Monitor
APIS WILL SERVE AS THE BACKBONE FOR A
MAJORITY OF SOFTWARE INFRASTRUCTURE#2

46. COST OPTIMIZE
YOUR PUBLIC
CLOUD
INFRASTRUCTURE
ASYOU GROW
ELECTRONIC CALCULATOR
4
7
GT
7
5
8
+ - MRC M- M+
-6 ×
9 %
BASE INSTANCE
+ STORAGE COST
+ PROVISIONED IOPS FOR
DATABASES
+ LOCAL SSD
+10% FOR PREMIUM SUPPORT
+10% FOR DEDICATED
INSTANCES OR HOSTS
=
TOO EXPENSIVE
ARCHITECT
FOR SUCCESS
INAN
INFINITE
COMPUTE
WORLD
#3

47. FIELD SERVICES
VERTICALHORIZONTAL
CONSTRUCTION RETAIL SALES
EDUCATIONHEALTHCARE SAFETY / COMPLIANCE
AGRICULTUREEVENTS SMBS
COMMUNICATION
PAPER REPLACEMENT
(FORMS/INVOICING)
MOBILE
UNLOCKS
NON-DESK
WORKER
PRODUCTIVITY
#4

48. NPS EVERYTHING
#5
CUSTOMERS EMPLOYEES

49. U.S. Labor Force by
Generation, 1995-2015
Source of Graph: Pew Research Center tabulations of monthly 1995-2015. Current Population Surveys, Integrated Public Use Microdata Series (IPUMS)
Source of Data: Fast Company, Rob Hernandez, Future of Work; Forbes, Jeanne Meister, Future Workplace “Multiple Generations @ Work” Survey; PwC, Millennials at Work.
MILLENNIALSAREA MAJORITY OFTHE US
WORKFORCE
think the performance review
process is flawed69%
“feel in the dark” about how their
managers think they are performing74%
expect to stay in job for less than
3 years91%
ranked personal development as
#1 reason for accepting a job65%
In millions
Boomers
Gen
Xers
Silents
Millennials

50. DIVERSETEAMSWIN#6
of companies funded by American
VCs had “one core foreign born
team member such as CEO or
CTO.”
75%
of U.S. Billion-Dollar startups
were founded by immigrant.s
51%
of top 10 companies in silicon
valley by NASDAQ market cap
are run by women.
20%
profitability increase when
adding 30% more female talent
to a company.
15%

51. THE SCREENLESS
SOFTWARE
MOVEMENT
#7

52. 7K
Alexa/
Echo has
skills
THE MARKET
HAS FALLEN IN
LOVEWITH
VOICE
8.2MM
Alexa/Echo‘s sold
since late 2014 intro
Source: Consumer Intelligence Research Partners

53. 11.30%
9.50%
18.70% 19.00%
41.60%
When did you first start using
voice search/commands?
Source: MindMeld, SEL Blog by Greg Sterling 2016
Within the last 6 monthsBetween 6 months and 1 year agoBetween 1 to 2 years agoBetween 2 to 3 years agoMore than 3 years ago
20%…of queries on the Google
mobile app and android
devices are voice
searches
Sundar Pichai
Google I/O Keynote
May 2016
VOICE

54. BVP’S 7 PREDICTIONS FOR 2017
1
APIs will serve as the backbone for
a majority of software infrastructure
The screenless software movement
Mobile unlocks non-desk worker productivity
NPS everything
Architect for infinite scale without
infinite spend
The year of human assisted AI
Diverse teams win
2
3
4
5
6
7