The State of the Cloud Report 2017

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

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

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

19. HOW FAST SHOULD I BE GROWING?

20. To Kristina Shen

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

22. 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.

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 DOTHETOP CLOUD COMPANIES PERFORM? Source: CapIQ internal sources and company announcements.. Note: Use quarterly revenue times four as a proxy for ARR.

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 $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.

25. 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%

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

27. HOW MUCH SHOULD I BURN?

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

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

30. 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

31. 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%

32. 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)

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. 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

35. HOW DO I SCALE?

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

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. 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. 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

40. 2017 PREDICTIONS

41. ADVANCES INAIAREAWESOME

42. ...BUT STILL DEPENDENT ON HUMANS.

43. 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

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. 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

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. NPS EVERYTHING #5 CUSTOMERS EMPLOYEES

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. 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

49. 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%

50. THE SCREENLESS SOFTWARE MOVEMENT #7

51. 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

52. 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

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