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Bessemer Venture Partners: The State of the Cloud, 2017-2018 Edition

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Byron Deeter, Partner, and Kristina Shen, Vice President present the Bessemer Venture Partners: The State of the Cloud, 2017-2018 Edition. AI and voice are on the rise, NPS is still king, and diversity is even more important than you realize.

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Bessemer Venture Partners: The State of the Cloud, 2017-2018 Edition

  1. 1. STATE OF THE CLOUD REPORT 2017Byron Deeter & Kristina Shen w w w . b v p . c o m / c l o u d Special Thanks to Anna Khan
  2. 2. 2016 WOWZA WHAT AYEAR
  3. 3. 4 Source: Uber
  4. 4. 5 Source: New York Stock Exchange
  5. 5. 6 Source: Make A GIF
  6. 6. 7 Source: Dean DeLisle, Blog Post
  7. 7. Source: 43 companies in BVP Cloud Index as of 02/01/2017. CapIQ A ROCKY START TO 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. 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 ...BUT THE 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. 9. BVP Cloud Index 43 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 02/03/2017 JUST A SMALL BUMP IN A 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. 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 FEWEST TECH IPOS SINCE FINANCIAL CRISIS
  11. 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. 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 IPOS ARE BVP-FUNDED Source: CapIQ Total
  13. 13. M&A From 2009 to Today 4X MORE M&A 2016 THAN ANY 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. 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 Exact Target 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. 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 Exact Target 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. 16. MORE THAN MEETS THE EYE $400B Market Cap Creation in Just the Top 200 Companies $180BN Public $129BN Major Acquisitions $104BN Top 100 Private Cloud Companies ~$400B MARKET CAPTop 200 companies 1,000s of Private Cloud Companies Source: SLWA Blog
  17. 17. HUGE BACKLOG OF PRIVATE COMPANIES >$100BN MARKET CAP IN CLOUD 100
  18. 18. HOW DO I SCALE? HOW MUCH SHOULD I BURN? HOW FAST SHOULD I BE GROWING? KEY QUESTIONS FROM TOP PRIVATE CEOS
  19. 19. HOW FAST SHOULD I BE GROWING?
  20. 20. To Kristina Shen
  21. 21. THE NEW GROWTH STANDARD? 8 YEARS TO $1B Dropbox is the Fastest SaaS Company to $1 Billion Revenue Run Rate
  22. 22. Years from $1M to $10M ARR HOW DO THE TOP 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.
  23. 23. $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 DO THE TOP CLOUD COMPANIES PERFORM? Source: CapIQ internal sources and company announcements.. Note: Use quarterly revenue times four as a proxy for ARR.
  24. 24. $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 $1M TO $100M ARR 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.
  25. 25. YEARS FROM $1M TO $100M ARR $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%
  26. 26. From $1mm ARR BVP GROWTH BENCHMARK BEST GOOD BETTER Yearsto$10MARR Yearsto$100MARR 3Years 7Years 4Years 10Years 2Years 5Years
  27. 27. HOW MUCH SHOULD I BURN?
  28. 28. DEFINING THE EFFICIENCY SCORE % Annual Revenue Growth Rule of 40 += % Profit Margins
  29. 29. DEFINING THE EFFICIENCY SCORE % Annual Revenue Growth Rule of 40 += % Profit Margins * Burn defined as FCF for this analysis % Annual CARR Growth Efficiency Score += % Burn*
  30. 30. SHOPIFY2013 GROWTH-DRIVEN EFFICIENCY SCORE Power 112% -4% 108% % Burn*% Revenue Growth = VEEVA2013 FCF-DRIVEN EFFICIENCY SCORE Power 62% 19% % Burn*% Revenue Growth + = MULTIPLE SUCCESSFUL MODELS OF EFFICIENT GROWTH 81% + * Burn defined as FCF for this analysis
  31. 31. DIFFERENT EFFICIENCY SCORES AT 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%
  32. 32. THE BVP EFFICIENCY RULE (>$30M ARR) 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)
  33. 33. 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
  34. 34. THE BVP EFFICIENCY RULE (<$30M ARR) 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
  35. 35. HOW DO I SCALE?
  36. 36. CUSTOMER ACQUISITION COST CAC PAYBACK CAC PAYBACK PERIOD (months) TOTAL S&M COSTS LAST QUARTER = NEW CMRR ADDED LAST QUARTER X % GROSS MARGIN
  37. 37. 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%
  38. 38. 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
  39. 39. MULTIPLE WAYS TO 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
  40. 40. 2017 PREDICTIONS
  41. 41. ADVANCES IN AI ARE AWESOME
  42. 42. ...BUT STILL DEPENDENT ON HUMANS.
  43. 43. THE YEAR OF HUMAN ASSISTED AI 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
  44. 44. 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
  45. 45. COST OPTIMIZE YOUR PUBLIC CLOUD INFRASTRUCTURE AS YOU 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 IN AN INFINITE COMPUTE WORLD #3
  46. 46. FIELD SERVICES VERTICALHORIZONTAL CONSTRUCTION RETAIL SALES EDUCATIONHEALTHCARE SAFETY / COMPLIANCE AGRICULTUREEVENTS SMBS COMMUNICATION PAPER REPLACEMENT (FORMS/INVOICING) MOBILE UNLOCKS NON- DESK WORKER PRODUCTIVITY #4
  47. 47. NPS EVERYTHING #5 CUSTOMERS EMPLOYEES
  48. 48. 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. MILLENNIALS ARE A MAJORITY OF THE US WORKFORCE think the performance review process is flawed69% “feel in the dark” about how their managers think they are performing 74% expect to stay in job for less than 3 years 91% ranked personal development as #1 reason for accepting a job 65% In millions Boomer s Gen Xers Silents Millennial s
  49. 49. THE SCREENLESS SOFTWARE MOVEMENT #6
  50. 50. 7K Alexa/ Echo has skills THE MARKET HAS FALLEN IN LOVE WITH VOICE 8.2MM Alexa/Echo‘s sold since late 2014 intro Source: Consumer Intelligence Research Partners
  51. 51. 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
  52. 52. DIVERSE TEAMS WIN#7 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%
  53. 53. 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

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