Bessemer Venture Partners' 2015 State of the Cloud

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State of the Cloud Report
2015Byron Deeter
www.bvp.com/cloud
@bdeeter

agenda
• State of the Cloud Industry: Where are we today?
• Metrics that matter: How are we doing?
• The outlook ahead: Wh...

WE’VE HAD SOME SKEPTICS ABOUT CLOUD COMPUTING
THROUGH THE YEARS…
“Mice Nuts”
Vacation time
=
The Innovator’s Dilemma
“Wate...

BVP’s CLOUD INVESTMENTS
1997 2000 2010
ASP Delivery
+
Recurring Rev
Cloud
Computing
(SaaS + PaaS)
SaaS
20154

5
Then…
<$25bn
Total Cloud Market Cap
2008 - Top 10 Public Cloud Companies
($ in mm)
Count Company MarketCap
1 Salesforce ...

…now!
Today - Top 10 Public Cloud Companies
($ in mm)
Count Company MarketCap
1 Salesforce $50,537
2 LinkedIn $26,285
3 Wo...

Cloud Revenue
Source: Market size IDC, 2014. Public company data per CapIQ. Legacy software cloud revenue per AppsRunTheCl...

Cloud Revenue up 10x in last six years
Source: Market size IDC, 2014. Public company data per CapIQ. Legacy software cloud...

Cloud Revenue up 10x in last six years
Projected to grow over2x in next four
$18bn
$9bn
$3bn
$26bn
$56.6bn
CAGR 22.8%
% of...

Saas Approaching 30% of Application Spend
2013 2014 2015 2016 2017 2018
0%
20%
40%
60%
80%
100%
On Prem SaaS
Source: IDC, ...

The first category has fallen: Cloud
CRMIs At A Tipping Point
2013 -2018
CAGR
19.6%
(3.9%)
2013 2016 2018
0%
20%
40%
60%
8...

2015 CRMBattle - Cloud 1 : On Prem0

We’re Just Seeing the Tip of the Iceberg!
42 Public Pure Play
Cloud Companies
28 Private Cloud
Unicorns
thousands Existing...

300 Up and Comers Identified In The Cloudscape…
14
Originally published in 2014. Updated versions will be available at www...

...28 of Which Have Grown Into
Private Cloud $1b+ businesses …
Dropbox InsideSales.comAtlassian Nutanix Sprinklr Cloudflar...

The Cloud Industry Has Outperformed
Growth
~160%
69% above the Nasdaq in
same time period
Exits
32
IPOs in BVP Cloud
Index...

Strong bvp cloud index performance in the last year
Source: 42 companies in BVP Cloud Index as of 5/29/2015. CapIQ. Legacy...

BVP Cloud Index expected to 3x in 5 years
Public Cloud Market Cap
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
6/2/2010...

agenda
• State of the Cloud Industry: Where are we today?
• Metrics that matter: How are we doing?
• The outlook ahead: Wh...

Profits & Cash flow are ultimately king
For All Types of Businesses…
Oil Producer Retailer Cloud Company
20

six key cloud Valuation Metrics
ARR % ARR Growth Retention / Upsell
CAC Payback % Gross Margin Burn Rate / FCF
21

ARRand ARRGrowth are best leading indicators
0%
20%
40%
60%
80%
100%
120%
140%
160%
T-4 T-2 T+0 T+2 T+4 T+6 T+8 T+10 T+12
...

23
Year 1 Year 2 Year 3 Year 4 Year 5
10 15
22.5
33.75
50.63
-16
-24
-36
-54
-81
-8 -12 -18
-27
-40.5
CAC PAYBACK
Resultin...

Retention /Upsell
1% churn results in ~$20m ARR loss after 4 years
~$20m ARR
delta
between
1% and 2%
monthly
churn
1% net
...

Year 1 Year 2 Year 3 Year 4
10 10 10 10
0
8
16
24
-8
CAC PAYBACK
CAC payback and retention are inter-related - strong upse...

ARR % ARR Growth Retention / Upsell
CAC Payback % Gross Margin Burn Rate / FCF
Cloud Metrics That Public and Private Inves...

Growth is the Biggest Driverof cloud Valuation
0% 1000% 2000% 3000% 4000% 5000%
0x
2x
4x
6x
8x
10x
12x
14x
16x
18x
f(x) = ...

Retention Is Typically the 2nd MajorDriveron
Valuation
Source: 42 companies in BVP Cloud Index as of 5/29/2015. CapIQ
2015...

Private Markets ARE less focused on retention rates in current
environment
2015 – Private Cloud Companies2013 – Private Cl...

Strong bvp cloud index performance in the last year
100%
260%
80%
100%
120%
140%
160%
180%
200%
220%
240%
260%
280%
1/1/20...

Bvp cloud index Growth driven FromOrganic Growth Not
Multiple Expansion
Source: 42 companies in BVP Cloud Index as of 5/29...

Private Cloud Multiples Are Trading at a premiumto Public
Cloud Multiples
5.7x
3.4x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
1...

TAKEAWAY: Guardrails forValuation
Representative SaaS Business ($20mm ARR)
50% 50-100% 100%+
85% 85-95% 95%+
24 mos 12-24m...

agenda
• State of the Cloud Industry: Where are we today?
• Metrics that matter: How are we doing?
• The outlook ahead: Wh...

THE OUTLOOKAHEAD
• The Cloud Wins
– First category (CRM) goes over 50% cloud in 2016
– Now at 42 public cloud companies in...

Industry cloud On the Rise
1
2
3
Software adoption moved from “nice to have” to
“table stakes”
Winner take most dynamic – ...

Cybersecurity: a hot market and a key threat
37

B2D MARKET TAKING OFF
38

FURTHER GROWTH OF IAAS - GREAT FOR SAAS
2013 2014 2015E 2016E 2017E
$0
$2
$4
$6
$8
$10
$12
$3
$4
$6
$8
$11
AWS Revenue ($ ...

More m&a ahead
40
• Classic Innovator’s Dilemma allowed
cloud entrants to thrive
• Too late to build
• Too expensive to bu...

Mobile Is a Game Changerforthe Enterprise
85%
Americans between 18-29
50%
Internet usage on mobile vs desktop
80%
Workforc...

The Most Expensive Real Estate in the World
$ / Sq Ft $5k $10k $20k
The Penthouse @ One
Hyde Park, London $15k
17 Upper Ph...

The Most Expensive Real Estate in the World
$ / Sq Ft $5k $10k $20k
The Penthouse @ One
Hyde Park, London $15k
17 Upper Ph...

Enterprise mobile has more monetization potential than
consumermobile
 …but enterprise apps are exploding
 # of enterpri...

Enterprise mobile will disrupt cloud
45
Becomegreat onmobile, oryournext challengerwill!

A special thankyou to…
• Kristina Shen - great effort and insights in building this report
• Peter, Umair, Adam, Alex, Bob...

Presented at Bessemer Venture Partners & Salesforce
Ventures
Cloud CEO Summit, June 2015
For more information visit www.bv...

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