State of the Cloud 2022: The Centaur Report with Bessemer Venture Partners
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Sameer Dholakia, Partner @ Bessemer Venture Partners Mary D'Onofrio, Partner @ Bessemer Venture Partners Elliott Robinson, Partner @ Bessemer Venture Partners Bessemer Venture Partners unpacks the most important trends of the cloud economy, and explores the new milestone entrepreneurs need to value above all else—reaching Centaur status, or $100M in ARR—and the paths to get there. Releasing insights for founders with big ambitions, Sameer Dholakia, Elliott Robinson, and Mary D’Onofrio share the insights from cloud benchmark data and dive into the strategies that three Centaur companies took to scale their cloud businesses to $100M ARR.
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State of the Cloud 2022: The Centaur Report with Bessemer Venture Partners
- 1. Sameer Dholakia Partner Bessemer Venture Partners @spdholakia Mary D'Onofrio Partner Bessemer Venture Partners @mcadonofrio Elliott Robinson Partner Bessemer Venture Partners @TheValuesVC 1 State of the Cloud 2022: The Centaur Report with Bessemer Venture Partners
- 2. (50%) 0% Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Jul-22 Aug-22 Percent Change EMCLOUD S&P MT SAAS FAANG MT SAAS, EMCLOUD, FAANG, and Major Indexes Performance since end of 2021 FAANG Performance: Approx. (34%) MT SAAS Performance: Approx. (43%) S&P Performance: Approx. (15%) Cloud stocks impacted by macro environment CapitalIQ as of 8/26/22 EMCLOUD Performance: Approx. (42%)
- 3. Source: CB Insights 69.3 65.9 65.8 58 60.5 58.5 81.5 94 134.2 153.8 162.1 177.98 143.9 108.5 7265 7125 7257 6796 6381 6191 6966 7119 7933 8280 9723 9256 8835 7651 0 2000 4000 6000 8000 10000 12000 0 20 40 60 80 100 120 140 160 180 200 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Funding ($B) # of Deals VC funding dropped 23% quarter-over-quarter in Q2 of 2022
- 4. 9x 8x 11x 13x 23x 34x 30x 2016 2017 2018 2019 2020 2021 2022 Average Cloud 100 Multiples Cloud 100 multiples have fallen in 2022 ARR multiples increased nearly fourfold from 9x in 2016 to 34x in 2021, and then fell to 30x in 2022 +278% 2016 to 2021 Footnote: Data reflects trailing twelve months from June of each year (11%) 2021 to 2022
- 5. 5 / Confidential and Not for Distribution 0x 5x 10x 15x 20x 25x 30x 35x Mean Top Quartile Bottom Quartile Median EV / ARR Top Quartile Mean Median Bottom Quartile ^EMCLOUD EV / ARR Multiples: 5-year performance Notes: ARR calculated as annualized calendar quarterly revenue, based on consensus estimates. Sources: CapitalIQ as of 8/26/22. 32.4x (70%) Below 17.0x (42%) Below | 9.8x | 5-Year High Current % Change 5-Year Average Current % Change | Current | 25.8x (69%) Below 13.4x (41 %) Below | | 7.9x 21.6x (70%) Below 11.6x (45%) Below | | 6.4x 13.9x (71 %) Below 7.7x (48%) Below | | 4.0x 5-year 2-year 1-year 6-month 3-month 1-month 2-weeks 1-week Current 08/ 25/ 17 08/ 26/ 20 08/ 26/ 21 02/ 25/ 22 05/ 26/ 22 07/ 26/ 22 08/ 12/ 22 08/ 19/ 22 08/ 26/ 22 Top Quartile 17.0x 21.6x 16.4x 11.0x 9.7x 10.4x 10.6x 10.3x 9.8x Mean 13.4x 17.2x 13.8x 8.9x 7.7x 8.1x 8.3x 8.0x 7.9x Median 11.6x 14.3x 11.0x 7.6x 6.7x 6.8x 6.8x 6.6x 6.4x Bottom Quartile 7.7x 8.8x 6.8x 4.5x 4.0x 4.1x 4.2x 4.0x 4.0x Average over: 5-year 2-year 1-year 6-month 3-month 1-month 2-weeks 1-week Current 08/ 25/ 17 08/ 26/ 20 08/ 26/ 21 02/ 25/ 22 05/ 26/ 22 07/ 26/ 22 08/ 12/ 22 08/ 19/ 22 08/ 26/ 22 Top Quartile 9.0x 28.0x 27.7x 14.8x 9.7x 8.7x 10.9x 10.8x 9.8x Mean 7.0x 19.4x 22.5x 12.3x 7.7x 6.9x 8.8x 8.1x 7.9x Median 6.4x 15.8x 17.8x 9.9x 7.0x 6.0x 7.3x 6.7x 6.4x Bottom Quartile 5.6x 9.8x 11.0x 5.5x 4.0x 3.6x 4.4x 4.0x 4.0x Multiple at:
- 6. Reminder: cloud fundamentals are still strong The recurring revenue SaaS model remains an incredibly strong business model…
- 7. …perhaps the greatest model in the history of the world?
- 8. 8 / Confidential and Not for Distribution Cloud 100 growth rates continue to accelerate The average Cloud 100 company grew +100% YoY in 2022, and the top quartile companies grew +120% YoY, faster than ever before Cloud 100 Growth Rates 2017 2018 2019 2020 2021 60% Average Top quartile 65% 90% 80% 90% 100% 65% 95% 100% 100% 110% 120% 2022 Data reflects trailing twelve months from June of each year
- 9. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Software Cloud Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10% We’re living in a cloud-first world In a few short years, cloud will become the majority of the software market.
- 10. $495B Cloud
- 13. $4.4T Technology $96T World GDP $675B Software $495B Cloud The cloud will grow beyond enterprise software market… …penetrating broader tech market and world GDP
- 14. Five trends driving our love of the cloud in 2022 The trends and predictions that still matter to Bessemer.
- 16. PAYMENTS CARD ISSUING PAYROLL INSURANCE BANKING Powered by a wave of APIs offering easy building blocks: Indirect monetization becomes the new “First Act” COMPANIES LEANING INTO INDIRECT MONETIZATION LENDING
- 17. Cloud goes to market CLOUD MARKETPLACES NOTABLE MARKETPLACE SELLERS CLOUD MARKETPLACE MIDDLEWARE
- 18. LABOR SHORTAGE & WELLNESS LABOR SHORTAGE & WELLNESS PRODUCTIVITY & COLLABORATION FREELANCERS/ CREATORS ECONOMY WORK AUTOMATION SUPPLY CHAIN Cloud software will help close the gap in global productivity
- 19. Low cloud penetration across the verticals Market leaders across select industries illustrate the potential for cloud adoption 860K Restaurants RESTAURANTS of US restaurants 6% TRANSPORTATION $60B TAM HOME SERVICES of the home services market 1% 900K Businesses AUTO REPAIR 260K Auto repair shops of the auto repair market 2% LAUNDROMATS of the laundry services market 2% 80K Laundry services of the transit technology market 1%
- 20. Cloud gets local to go fully global HORIZONTAL LEADERS THAT FOCUS ON LOCALIZATION LATAM APAC EMEA
- 21. The rise of cloud is a global phenomenon Best-in-class cloud businesses can be found all around the world, as evidenced by this year’s Cloud 100 companies * Based on founding location or primary office listed in Pitchbook, CapIQ, Crunchbase
- 22. 2022 is the year of the Centaur
- 23. ~160 Private Centaurs in the world ~7x more rare than unicorns Centaurs by the numbers Centaurs are an elite subset of the growing unicorn herd. At $100M ARR, these businesses have product market-fit, scalable GTM, and a growing customer base. Centaurs: The $100 million ARR milestone for SaaS businesses
- 24. $0M $10M $20M $30M $40M $50M $60M $70M $80M $90M $100M 1 2 3 4 5 6 7 8 9 10 11 12 13 $ ARR in millions Years from $1M to $100M At Bessemer, we have a long history of helping cloud companies achieve Centaur status
- 25. Successful strategies for becoming a Centaur Expanding addressable market via ”Second Acts” Prioritizing customer retention and growth to accelerate revenue Activating product-led growth levers 1. 2. 3.
- 26. Vahe Kuzoyan, co-founder & president Ara Mahdessian, co-founder & CEO Founded in 2013 9 years to $100M ARR ServiceTitan’s cloud platform helps businesses handle all aspects of field service management, from scheduling to invoicing to sales.
- 27. Commercial landscaping Pro Products (Marketing, Pricebook, Phones) Source: Company announcements CASE: Residential HVAC & Electrical Construction Expanded platform offerings: Consumer financing, Payments Residential Chimney, Garage, Water 2022 2020 2021 2013 2017 2019 Scheduling INITIAL TRADE: Residential Plumbing Commercial Pest & lawn Payroll How ServiceTitan expanded through new solutions and adjacent verticals
- 28. Tope Awotona, founder & CEO Founded in 2013 8 years to $100M ARR Calendly developed an automated scheduling platform used by individuals, teams, and corporations to schedule, prepare, and follow up on meetings.
- 29. 2013 2020 2021 2022 CASE: KEYS TO GROWTH: Calendly’s path to $100m+ ARR Offered a low friction, freemium model with transparent pricing Enhanced core product expansion and customizations Forged new partnerships, integrations, & extensions 1. 2. 3. Bootstrapped from $0 to $70M ARR in 7 years! Captured enterprise demand and augmented PLG business with enterprise selling 4. How Calendly reached Centaur status through product-led growth levers
- 30. Edith Harbaugh, co-founder & CEO John Kodumal, co-founder & CTO Founded in 2014 8 years to $100M ARR LaunchDarkly is the world’s leading feature management platform
- 31. CASE: KEYS TO GROWTH: Delighted developers through product excellence 1. 2. 3. Evangelized within developer communities Expanded target customer profile Developed a full platform via multiple Acts 4. Evangelize Expand Delight Developer happiness Develop LaunchDarkly accelerated revenue by prioritizing developer happiness
- 32. Celebrating recently announced Centaurs The Cloud 100 companies that have externally announced they’ve crossed the $100M ARR milestone.
- 33. Go to bvp.com/cloud The Centaur Report bvp.com/centaur Scaling to $100M bvp.com/scale State of the Cloud 2022 bvp.com/atlas/state-of-the-cloud-2022
- 34. Thank you!
Editor's Notes
- Elliott: Wow! It’s an honor to be back on stage here at SaaStr Live and we’re just thrilled to be here in person with you all in sunny California! For nearly a decade, the Bessemer State of the Cloud report has served as the definitive source of information on where the Cloud economy is going and for delivering insights to Cloud founders and their teams when it comes to effectively scaling their businesses. A lot has changed over the past year. And before we walk you through the report, I'm delighted to share with you and important update on our end which is that my good friend Sameer Dholakia has joined the investment team here at Bessemer after years of operating and Board leadership at top cloud companies such as Sendgrid, Twilio, ServiceTitan, and PagerDuty. Sameer: Thanks, Elliott! I’m so glad to be joining this year’s State of the Cloud with this amazing team, especially because, for the past many years, I was always out in the audience… and I always looked forward to the great insights and benchmarks that would come from this report! I am so proud to now be on the other side and working with this great team to produce them! But I know from being in the audience last year that this year’s report has seen some significant changes. In fact, we went from focusing on one mythical creature to another, right Mary?. Mary: [insert preview of the 3 things that we are going to cover – cloud environment, predictions, centaur, etc] At last year’s SaaStr State of the Cloud we focused on how to become a Cloud unicorn—but this year, we’re here to focus on a new milestone we believe entrepreneurs need to value above all else, and that’s becoming a Centaur—in other words, how to reach $100M ARR. In a new macro economic environment, what we value and measure is shifting away from pure valuations to include other critical drivers of the business: revenue. Elliott: But before we dive into the best practices for how to effectively scale your startup into Centaur status, we wanted to provide some more context on what’s happening in the cloud economy.
- Mary: We don’t like being the bearer of bad news, but this graph probably doesn’t shock anyone in the audience. To all the cloud founders building today—we know what you might be feeling: Pressure. Who could blame you? Interest rates are climbing, inflation is on the rise, and the public stock market has taken a hit. Since its historical highs of 2021, the public cloud market as seen through the BVP Nasdaq Emerging Cloud Index is down approximately 60%.
- Mary: And with the recent pull back in the public markets, we’ve also seen VC funding drop 23% in Q2. After a 13-year bull market in which there was an abundance of capital in the venture ecosystem, private valuation multiples skyrocketed in 2020 and 2021. While we don’t entirely know just yet how drastically this pull back has impacted valuations of private cloud companies, we do know that entrepreneurs face stronger headwinds than they may have in all of their lifetimes. Yet, there is hope! Without a question, it’s tough to lead in the midst of the current macroeconomic uncertainty. However, when we compare today’s environment to the dot-com crash of the early 2000s or the Great Recession of 2008, we see that the dynamics of this Cloud downturn are tethered more closely to financial market cycles versus the underlying performance of the businesses themselves.
- Mary: Every year, at Bessemer, we look to the Cloud 100 as the definitive ranking of the top private cloud companies. Through our benchmark analysis, we’ve seen ARR multiples increased nearly four-fold from 9x in 2016 to 34x in 2021. Cloud 100 multiples may have fallen in 2022, but the silver lining to the 11% decrease is that overall performance in the private markets still demonstrates strong fundamentals across top private cloud businesses.
- Mary: Following the market pullback, it has been no surprise that starting in Q1 of this year, valuation lenses have shifted toward rewarding efficient growth rather than growth alone. It is now well understood that valuations for cloud companies are currently more tightly coupled with efficiency scores rather than absolute growth rates. Rule of 40 or higher BVP Cloud Index companies trading on average 150% higher than their less efficient peers But not all Rule of 40 profiles command the same valuation premium. Even for Rule of 40 outperformers, multiple compression of unprofitable companies has been more significant. What explains this? The relative importance of efficiency score components is changing. In Nov’21, at peak market exuberance, a ~1% improvement in revenue growth had the same impact on valuation as a ~6% improvement in FCF margin. Today, sentiment has flipped drastically, with a ~1% improvement in FCF margin having the same impact as a ~1.1% improvement in revenue growth. We witnessed an unprecedented flooding of capital into the public cloud software ecosystem in 2020 and 2021, essentially 2.5x’ing the average valuation multiple to above 20 times ARR. In the macro-economic backdrop of 2022, we’ve seen a return to normalized valuation levels, with the average cloud software company trading around 8x ARR. The public markets are reminding the private markets that building a $10 billion market cap company is rarefied air.
- Sameer: Now, Mary just gave us context and insight into the current state of the cloud market. But it’s important to have the long view in mind: The SaaS model - with its recurring revenue and efficient development and delivery model - continues to be the best way to bring software to customers and build a great business. Indeed, at Bessemer, we’d argue that the cloud business model is the best in the world. And we see that reflected in the performance of Cloud companies, regardless of the macro environment… Despite public valuation multiples having contracted back to what most—including myself —would consider more normalized levels, we want to remind entrepreneurs and investors alike that cloud businesses today are still displaying strong fundamentals.
- In fact, the 2022 Cloud 100 class reached all-time highs for average and top quartile growth rates, besting all previous Cloud 100 cohorts. The average Cloud 100 company grew at an astonishing 100% yoy, and the top quartile grew at 120%! Given that 70% of the Cloud 100 are already Centaurs with over $100M ARR, that's an especially amazing proof point that cloud business fundamentals are as strong as ever. For those in the audience who are building these Cloud 100 companies - congratulations! Truly incredible results, during a very challenging time.
- Sameer: And if we zoom out and reflect on where we are in the journey of cloud / SaaS adoption, you’ll see just how far we ‘ve come. From a macro perspective, it’s important to see that the world—pandemic or not—was (and still is) going through a global technological shift with cloud computing. After 20 years, a near majority of all software is cloud-first. On the SaaStr stage back in 2020, the Bessemer team compared how the cloud is as fundamental as the electric grid in terms of how the world runs. We still hold that belief to be true!
- Sameer: Now, let’s take a step back and see where the cloud is in context of the global economy. Cloud computing has changed the way we deliver software, which has changed the way technology serves the world with digital solutions. With this in mind, the nearly half a trillion dollar cloud industry will continue to transform Cloud: $ 494.7bn (https://www.gartner.com/en/newsroom/press-releases/2022-04-19-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-nearly-500-billion-in-2022) Software: $ $674.9bn (https://www.gartner.com/en/newsroom/press-releases/2022-04-06-gartner-forecasts-worldwide-it-spending-to-reach-4-point-four-trillion-in-2022) IT: $4.4T (https://www.gartner.com/en/newsroom/press-releases/2022-04-06-gartner-forecasts-worldwide-it-spending-to-reach-4-point-four-trillion-in-2022) World GDP: $96.1T (https://data.worldbank.org/indicator/NY.GDP.MKTP.CD)
- And not just continue to disrupt the legacy, on-premise Enterprise software market…which it is well under way in doing… Cloud: $ 494.7bn (https://www.gartner.com/en/newsroom/press-releases/2022-04-19-gartner-forecasts-worldwide-public-cloud-end-user-spending-to-reach-nearly-500-billion-in-2022) Software: $ $674.9bn (https://www.gartner.com/en/newsroom/press-releases/2022-04-06-gartner-forecasts-worldwide-it-spending-to-reach-4-point-four-trillion-in-2022) IT: $4.4T (https://www.gartner.com/en/newsroom/press-releases/2022-04-06-gartner-forecasts-worldwide-it-spending-to-reach-4-point-four-trillion-in-2022) World GDP: $96.1T (https://data.worldbank.org/indicator/NY.GDP.MKTP.CD)
- But also technology-at-large. We see providers rethinking everything from the hardware and chips that run the cloud infrastructure, to the way we approach Security, the way we think about networking, the way we think about communications. Let’s take one company many in the audience might know of: Twilio. Twilio, the communication-as-a-service platform, started off as a developer API to help businesses communicate with their customers. Today, it’s clear how Twilio is, in many ways, reimagining the telecom industry, and changing the way businesses communicate with its customers through SMS, voice, email, and beyond.
- And with the growth of cloud adoption comes the expanse of its influence—one day we expect the cloud to play a significant role in all facets of society and the global economy. Indeed, many might say we’re already there. These past couple years, during the Covid pandemic, we saw just how critical the Cloud is to the running of our Global economy. If not for amazing Cloud services, like Zoom, Gmail, DoorDash and so many others, we would never have survived the shutdowns, and certainly not without more impact to the economic growth rates! We saw an immense acceleration of digitization in business, and adoption by consumers (my Dad finally learned how to order his groceries on Instacart!), during the pandemic. You see these cloud solutions in the hands of your plumber, when you go to the Salon for a haircut, at the fingertips of scientific researchers and truck drivers…we see it transforming our global supply chains and healthcare models, and the list goes on. In every walk of life, consumer or business, regardless of industry or function, we are seeing this digitization and the impact of cloud solutions on the way we work and live. In so many ways, the cloud, the work you are doing, is helping the world become more efficient, resilient, and sustainable. [Transition] And despite all that progress and impact from the Cloud, there’s still a lot of exciting stuff happening…so to share Five trends driving our love of Cloud, I’ll turn it over to my friend and partner, Elliott Robinson!
- [Transition] Elliott: As you’ve heard from both Mary and Sameer, while the Cloud ecosystem has come a long way over the last two decades, we’ve still got an exciting road ahead. And each year, as part of the State of the Cloud Report we spend time talking to the experts, buyers, and developers so we can share our market insights and the trends that will drive where the cloud is going. Lets dive in!
- Elliott: Years ago a handful of established SaaS companies were bold enough to explore payments and lending as a “Second Act”. Cloud giants such as Toast, ServiceTitan, and Shopify found that integrating adjacent financial services not only improved the stickiness of their product, but also became a significant revenue driver over time. But going forward, we predict that the current and future class of cloud businesses such as Cents *build out sense and talk about bringing it forward* in the laundromat market, wrapbook in production, and glossgenius will choose to pull their second Act forward and open the show with Indirect monetization with offerings such as embedded payroll, card issuing, insurance, and other payments solutions to offer a more robust offering from day 1.
- Elliott: We’re seeing how cloud businesses are offering new monetization strategies, to build more efficient and revenue generating businesses. In addition to new product innovation, we’re also seeing cloud leaders boost their go to market by leveraging the power of cloud marketplaces. Public cloud marketplaces have emerged as one of the most natural places for SaaS buyers and sellers to transact, regardless of whether it is a bottoms-up purchase or a large enterprise deal. *Leverage tackle* To put it simply, the cloud is helping us sell more cloud! It’s still early innings for this trend but in 2021, we saw $4B of marketplace transactions, growing 3 times faster than the public cloud itself. But this still represents less than 1% of total cloud transactions. Cloud marketplace platform Tackle forecasts that we will continue to see these marketplaces pick up speed, growing from $4B last year to $50B of GMV by 2025.
- Elliott: As Sameer mentioned, cloud software is not touching everything, and on a global scale, but we can predict that cloud software will play a pivotal role in closing the gap in global productivity in a few key ways: Rewrite - at the end of the day, cloud software is helping us collaborate, … — Digitizing global supply chain and logistics — Enabling labor markets as they shift to hybrid models — Improving business systems through automation — And facilitating new employment models, such as powering the freelancer economy
- Now when we look globally, cloud adoption still has a long way to go : In North America, cloud penetration rates are still relatively low across different vertical industries. And when we pan out and look at global markets, we see even more runway for cloud adoption. For example: In North America, 15% of IT spend is on cloud, whereas Europe allocates 10% and across all of the remaining core markets that we track, Cloud IT spend is just in the single digits If you take a look at a unique subset of Verticals, you find that many of the most exciting companies are still under 15% penetrated in their respective markets.
- Elliott: It’s clear the cloud will continue to sweep the globe, and we have active SaaS investors on the ground in the US, Europe, Israel, India and China—all markets that have seen multiple cloud players that have surpassed the $100M revenue mark. And when we look at this year’s Cloud 100 companies they span five different continents! In fact, 30% of this year’s honorees have headquarters outside of the United States.
- Mary: And finally, if you couldn’t already tell from this year’s report, we believe 2022 is the year of the Centaur. We believe the biggest cloud trend impacting the private markets is a new measure of success—reaching the $100M ARR milestone. For years, the tech industry has measured the health of the cloud through valuation metrics, but given the market pullback, we knew the venture and entrepreneurial industry needed a new measure more closely aligned with business fundamentals. Centaurs are an elite subset of the growing unicorn herd. At $100M ARR, Centaur businesses have product market-fit, scalable GTM, and a growing customer base. In short, Centaurs are an elite cohort that measures what ultimately matters most—durable growth at scale. Businesses growing annual recurring revenue is the best predictor of public-company success.
- Mary: In our research, we revealed that there are approximately 160 private cloud Centaurs in the world and that these businesses were 7x more rare than unicorns. And as we look to the 2022 Cloud 100 as the top cohort of private cloud businesses, we were proud to share that over 70% of 2022 Cloud 100 Honorees are currently Centaurs. By the end of the year we expect that number to be over 80%.
- Mary: We have been longtime champions of enduring cloud businesses that have carved unique paths to the $100M ARR milestone. Companies such as HashiCorp, Zapier, and Toast have all grown their revenue at unprecedented rates and continue to live on in the Centaur Hall of Fame.
- Mary: Now if achieving Centaur status is the new milestone—let’s answer the question on every cloud founder's mind: “How on earth do you get there?” We’ve seen companies accelerate revenue through a number of strategies such as expanding their addressable market through new product lines, entering new markets and geographies, introducing product-led growth strategies, layering on enterprise sales, and even selling their products through channels like Cloud marketplaces. With that in mind, we're going to walk you through three incredible case studies, highlighting the learnings and best practices from ServiceTitan, Calendly, and LaunchDarkly. [Transition - Sameer to hold on this slide as he gives Second Act context] Sameer: At Bessemer, we’ve seen all of our cloud and vertical SaaS giants accelerate revenue growth, broaden their market, and increase customer retention through a strategy known as the “Second Act.” One specific type of Second Act we wanted to dive into today is known as “leapfrogging.” As a board member at our first Centaur case study, ServiceTitan, I’ve seen this strategy play out first hand, with great success.
- Sameer: ServiceTitan, #7 on this year’s Cloud 100 list, has made an indelible mark in the home and commercial services industry, as the go-to vertical software solution to support these businesses. Founded in 2013, the company’s original product targeted residential plumbing businesses. It rose to prominence thanks to an outstanding product that had strong product-market fit. This was largely due to the fact that the team has always had a deep sense of customer empathy that emanated from its founders. (In fact, both Vahe and Ara had parents who worked in these trades.) From that first trade of plumbing, they recognized the opportunity to expand organically into adjacent verticals, first with heating and cooling (or HVAC), and then electrical, as those trades shared many of the same problems that the plumbers did.
- Sameer: Leveraging its strong, initial reputation within their first verticals, and a track record of referenceable customers, ServiceTitan built a platform that extended capabilities for their customers through many new FinTech Products, like Payments and Financing, and “Pro Products,” such as Marketing, Payroll, and most recently Schedule Engine. The team also began expanding to adjacent verticals such as residential water treatment, chimney and garage maintenance, landscaping, pest control, and beyond. The key takeaway here, for the SaaS leaders in the audience, is that if you’ve built a platform to service one customer audience, there’s a good chance that you can solve more problems with new products for your initial customers, and with some adaptations, expand to serve entirely new customers in adjacent verticals. That’s one great formula for achieving growth and scaling your business… [Transition] over to Ell for our next case study… TRANSITION Elliott: Not all early stage cloud companies make the decision to raise a ton of venture capital throughout their growth journey. In many cases, bootstrapping can help to instill capital efficiency as a core operating principal at your company from the very beginning.
- Elliott: We see this in Calendly, the SaaS scheduling company founded by CEO Tope Awotona. Initially launched in 2013, Calendly was met with skepticism by some who didn’t think a scheduling app could become a big business. Calendly’s story is a textbook example of what’s possible when four key growth factors are executed in concert.
- Elliott: First, the Freemium Model - Calendly successfully maintained a healthy balance of offering a free product, while also presenting various avenues to convert users into paying subscribers. With transparent pricing, the business grows with their customers as retention and usage scales overtime. Second, product expansion and customization - Over the years, Calendly has expanded its core scheduling tool into a comprehensive automated platform having added new functionalities to drive not only more usage but also the types of customers they can serve. Next, partnerships, integrations and extensions - Integrations with other tech companies such as Stripe for payments, Zapier for app automation, and Intercom for customer engagement helped them build an ecosystem to drive more value. And finally, Calendly built an enterprise sales team to move up market. Introducing enterprise sales into a Product Led Growth operation is a natural evolution once a company reaches a particular scale, but it’s also an extremely delicate inflection point. Calendly got the timing just right. Today they define enterprise customers as those that pay one hundred thousand dollars or more annually, which has grown tenfold in the last year alone. Now, I want to really emphasize their success: Before the announcement of their most recent financing in 2021, Calendly grew to $70 million of ARR in 7 years, having only raised five hundred and fifty thousand dollars in its seed round!! And then, last summer, Calendly reached Centaur status—their efficient path to $100M of ARR is one many other SaaS PLG companies can model.
- Mary: For our third and final Centaur study, we look to a company that is excited to announce its Centaur status today: LaunchDarkly. LaunchDarkly is the world’s leading feature management platform, which achieved Centaur status through a thoughtful combination of product excellence and market evangelism.
- When LaunchDarkly first started in 2014, developers were drawn to its new, easy way to deploy and manage feature flags. At the time, feature flagging was an “aspirational” practice in software development but was only implemented at large enterprises or companies that could set aside development resources due to the pain of instrumentation, with systems haphazardly designed, error prone, and hard to maintain. Today, feature flagging is thought of as a best practice in CI/CD and software development, but LaunchDarkly didn’t change the industry perspective overnight. They did it through focusing on four areas to gain the trust of developers and drive growth: First, LaunchDarkly focused on building an excellent, frictionless product. If you’re selling to developers and your product isn’t amazing for them to use, you’ve already lost them. Then, LaunchDarkly built developer communities to help evangelize a new way to build software. Meanwhile, the team continued to build a full platform of new products serving developers that helped drive usage, retention, and revenue over time. And finally, with new products at LaunchDarkly came new customer profiles the team could serve. By broadening their customer base, LaunchDarkly could widen their footprint with every company that delivers software, inclusive of experimentation, data insights, and a connectivity suite.
- Sameer: We hope cloud founders out there see that building your path to a hundred million of ARR will vary —depending on your market, your sales motions, and your product platform, among numerous other factors. The key takeaway here is that when you focus on your customers, and build an efficient, high-growth business, you’ll find yourself on path to building the next Centaur company, and will prove that it’s not only doable, but that it’s doable whether we’re in a pandemic or not, or whether we’re battling generationally-high inflation rates or not! You’ve got this! So with that in mind, we’ll close out Bessemer’s Centaur Report by recognizing the 47 new Centaurs that have joined the ranks. At Cloud 100 this year, we recognized players across a number of categories —from Algolia and Forter to Yotpo and Zapier. Congratulations to all those who have reached this milestone! Sameer: We hope that we convinced you today that: Despite turbulence in the public markets and contraction in revenue multiples, cloud business fundamentals remain as strong as ever! Cloud adoption is everywhere and only accelerating! In every vertical, function and geography. We are all privileged to get to work in this dynamic and increasingly-critical sector of the economy! For all those in the audience today working hard every day to build your company into our next Centaur case study, we applaud you, are inspired by you, and want to help you!
- Sameer: To learn more about how to become a Centaur, go to bvp.com/centaur to get more resources to help you scale your cloud business to $100M ARR.