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Bessemer Venture Partners' 2019 State of the Cloud

What goes into building an enduring cloud business? Bessemer investors Byron Deeter, Kristina Sheen, and Anna Khan reveal the G.R.I.T. framework and ways for cloud founders to develop new levels of operational rigor. In this presentation, Bessemer unveils insights into the cloud industry, Good, Better, Best frameworks for SaaS startups, and the 2019 technology trends and predictions Bessemer is most excited about.

Follow the Bessemer Cloud Team on Twitter:
@bdeeter
@kshenster
@annarchyy

About Bessemer Venture Partners:
Bessemer Venture Partners was born from innovations in steel that literally forged modern building and manufacturing. Today, we work with people who want to create revolutions of their own. We've been fortunate to be a part of over 120 IPOs in the last 50 years, including Shopify, Yelp, LinkedIn, Skype, LifeLock, Twilio, SendGrid, DocuSign, Wix, Box, and MindBody.

www.bvp.com
@BessemerVP

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Bessemer Venture Partners' 2019 State of the Cloud

  1. 1. State Of The Cloud 2019 BYRON DEETER Partner BVP @bdeeter KRISTINA SHEN Partner BVP @kshenster ANNA KHAN Vice President BVP @annarchyy
  2. 2. Byron Deeter Partner BVP @bdeeter Kristina Shen Partner BVP @kshenster State Of The Cloud 2019 www.bvp.com/cloud Anna Khan Vice President BVP @annarchyy
  3. 3. BESSEMER’S TOP 10 LAWS OF CLOUD COMPUTING 2008
  4. 4. 0
  5. 5. HOW MANY $1B+ PRIVATE CLOUD COMPANIES ARE THERE, TODAY? HOW MANY $1B+ PRIVATE CLOUD COMPANIES ARE THERE, TODAY?
  6. 6. 55
  7. 7. S o u r c e : T e c h C r u n c h , F o r b e s , R e c o d e , M a r k e t W a t c h , M o r g a n S t a n l e y H e a d l i n e s
  8. 8. S A A S T R A N N U A L 2 0 1 9 S o u r c e : A r i L e v y , T w i t t e r
  9. 9. S A A S T R A N N U A L 2 0 1 9
  10. 10. 2018 ALONE SAW >$90B OF LARGE M&A $1.9B $2.9B$8B $7.5B $2.4B $1.6B $1.4B $33B S o u r c e : C a p I Q a n d P i t c h b o o k
  11. 11. ~$44B ALSO ADDED IN MARKET CAP THROUGH CLOUD IPOS S o u r c e : C a p I Q a n d P i t c h b o o k ( M a r k e t C a p a f t e r D a y 1 o f T r a d i n g . )
  12. 12. IN FACT THE BUYING DEMAND FOR CLOUD SHARES HAS HIT RECORD HIGHS VCDollarsRaised($B) $MarketCap($B) Comb in ed Clou d L iq u id ity 2 0 1 0 – 2 0 1 8 , an d VC I nvestments Rais ed $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 M&A IPO VC Dollars Raised S A A S T R A N N U A L 2 0 1 9 S o u r c e : C a p I Q a n d P i t c h b o o k
  13. 13. $0 $200 $400 2010 2011 2012 2013 2014 2015 2016 WE PREDICTED THE CLOUD MARKET CAP WOULD HIT $500B IN 2020 $BMarketCap Pu b lic Clou d Market Cap S A A S T R A N N U A L 2 0 1 9 $250 S o u r c e : C a p I Q a n d P i t c h b o o k
  14. 14. WE PREDICTED THE CLOUD MARKET CAP WOULD HIT $500B IN 2020 $BMarketCap Pu b lic Clou d Market Cap S A A S T R A N N U A L 2 0 1 9 $0 $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 $500B S o u r c e : C a p I Q a n d P i t c h b o o k
  15. 15. INSTEAD, WE HIT THE MARK 2 YEARS EARLIER IN MARCH 2018 $BMarketCap Pu b lic Clou d Market Cap S A A S T R A N N U A L 2 0 1 9 $0 $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 March 2nd 2018 $500B $500B S o u r c e : C a p I Q a n d P i t c h b o o k
  16. 16. PUBLIC CLOUD HAS A PATH TO $1T+$BMarketCap Total Clou d Market Cap S A A S T R A N N U A L 2 0 1 9 $690B Feb 5th 2019 $1T $0 $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 S o u r c e : C a p I Q a n d P i t c h b o o k
  17. 17. THE CLOUD 100 IS VALUED AT $175B+ S o u r c e : P i t c h b o o k
  18. 18. HOW DO WE PROTECT FOR VOLATILITY ? S A A S T R A N N U A L 2 0 1 9 BVP Nasdaq Emerging Cloud Index
  19. 19. HOW TO BUILD A RESILIENT COMPANY
  20. 20. Q: WHEN WAS THE LONGEST BULL MARKET?
  21. 21. Longest Bull Run in History ~10 years 2nd Longest Bull Run 9.5 years S o u r c e : y a h o o f i n a n c e . S & P 5 0 0 f r o m 1 9 5 0 t o 1 / 2 9 / 2 0 1 9 .
  22. 22. HOW TO BUILD A RESILIENT COMPANY GROWTH (ARR) S A A S T R A N N U A L 2 0 1 9
  23. 23. $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 S o u r c e : C a p I Q , i n t e r n a l s o u r c e s a n d c o m p a n y a n n o u n c e m e n t s . N o t e : U s e q u a r t e r l y r e v e n u e t i m e s f o u r a s a p r o x y f o r A R R . N o t e : A s s u m i n g i t t a k e s 2 4 m o n t h s f r o m f o u n d i n g t o $ 1 M A R R i f d o n o t h a v e a c t u a l d a t a . S A A S T R A N N U A L 2 0 1 9 $100
  24. 24. YEARS FROM $1M TO $100M ARR S A A S T R A N N U A L 2 0 1 9 $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 Pu b lic Clou d Comp an ies 5.3 yrs Top 25% 7.3 yrs Median 10.6 yrs Bottom 25% S o u r c e : C a p I Q , i n t e r n a l s o u r c e s a n d c o m p a n y a n n o u n c e m e n t s . . N o t e : U s e q u a r t e r l y r e v e n u e t i m e s f o u r a s a p r o x y f o r A R R . N o t e : A s s u m i n g i t t a k e s 2 4 m o n t h s f r o m f o u n d i n g t o $ 1 M A R R i f d o n o t h a v e a c t u a l d a t a .
  25. 25. BVP GROWTH BENCHMARK S A A S T R A N N U A L 2 0 1 9 F rom $ 1 mm ARR Yearsto$10MARR Yearsto$100MARR 3Years 7Years 4Years 10Years 2Years 5Years BEST GOOD BETTER
  26. 26. HOW TO BUILD A RESILIENT COMPANY GROWTH (ARR) S A A S T R A N N U A L 2 0 1 9 RETENTION IS YOUR BEST FRIEND
  27. 27. RETENTION FOR DIFFERENT CUSTOMER SEGMENTS S A A S T R A N N U A L 2 0 1 9 Gross Retention 80 – 90%70 – 80% 90%+ Net Retention 90 – 120%80 – 100% 100%+ Average ACV $12 – $50K<$12k $50K+ SMB EnterpriseMidmarket
  28. 28. S A A S T R A N N U A L 2 0 1 9 RETENTION IS A MAJOR DRIVER OF VALUATION $40 $60 $85 $115 $150 $180 $200 50% 42% 35% 30% 20% 11% 0% 20% 40% 60% 80% 100% $0 $50 $100 $150 $200 $250 $300 $350 2013 2014 2015 2016 2017 2018 2019 Net Retention 110% Assumed 2019 Revenue Mult 10x Enterprise Value $2.0bn
  29. 29. S A A S T R A N N U A L 2 0 1 9 AN ADDITIONAL 1% IN NET RETENTION = $100M OF VALUE Net Retention 125% Enterprise Value $3.5bn Increased Value +$1.5bn $40 $66 $102 $148 $209 $276 $347 65% 54% 46% 41% 32% 26% 0% 20% 40% 60% 80% 100% $0 $50 $100 $150 $200 $250 $300 $350 2013 2014 2015 2016 2017 2018 2019
  30. 30. S A A S T R A N N U A L 2 0 1 9 CHURN DRAMATICALLY DECREASES VALUE Net Retention 100% Enterprise Value $1.4bn Decreased Value -$630m $40 $56 $75 $97 $120 $135 $137 40% 34% 29% 24% 13% 1% 0% 20% 40% 60% 80% 100% $0 $50 $100 $150 $200 $250 $300 $350 2013 2014 2015 2016 2017 2018 2019
  31. 31. S A A S T R A N N U A L 2 0 1 9 +
  32. 32. HOW TO BUILD A RESILIENT COMPANY GROWTH (ARR) S A A S T R A N N U A L 2 0 1 9 RETENTION IS YOUR BEST FRIEND IN THE BANK
  33. 33. S A A S T R A N N U A L 2 0 1 9
  34. 34. S A A S T R A N N U A L 2 0 1 9 QUEEN
  35. 35. MANAGE YOUR RUNWAY Buffer for contingency plan 18 – 24 months runway Hiring is a big lever
  36. 36. THINK ONE FINANCING AHEAD ARR Reven u e Mu ltip les of Clou d Comp an ies S o u r c e : C a p I Q , i n t e r n a l s o u r c e s a n d c o m p a n y a n n o u n c e m e n t s . P r i c e d a s o f 1 / 2 3 / 2 0 1 9 N o t e : U s e q u a r t e r l y r e v e n u e t i m e s f o u r a s a p r o x y f o r A R R . I n c l u d e s 5 2 p u b l i c c l o u d c o m p a n i e s i n t h e E M C L O U D . S A A S T R A N N U A L 2 0 1 9 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 1/1/11 5/1/11 9/1/11 1/1/12 5/1/12 9/1/12 1/1/13 5/1/13 9/1/13 1/1/14 5/1/14 9/1/14 1/1/15 5/1/15 9/1/15 1/1/16 5/1/16 9/1/16 1/1/17 5/1/17 9/1/17 1/1/18 5/1/18 9/1/18 1/1/19 Peak – Mar 2014 ~10x Trough – May 2014 5.8x Trough – Feb 2016 4.6x Current 9.8x
  37. 37. HOW TO BUILD A RESILIENT COMPANY GROWTH (ARR) S A A S T R A N N U A L 2 0 1 9 RETENTION IS YOUR BEST FRIEND IN THE BANK TARGETED SPEND (“EFFICIENCY”)
  38. 38. S A A S T R A N N U A L 2 0 1 9 DEFINING EFFICIENCY Net New ARR Net Burn = BVP Efficiency Score (<$30M ARR)
  39. 39. S A A S T R A N N U A L 2 0 1 9 BVP Nasdaq Emerging Cloud Index EFFICIENT BUSINESSES ARE REWARDED IN ALL MARKETS
  40. 40. S A A S T R A N N U A L 2 0 1 9 BVP EFFICIENCY SCORE (<$30M ARR) BEST > 1.5x GOOD BETTERNet New ARR Net Burn = < 0.5x 0.5x – 1.5x
  41. 41. S A A S T R A N N U A L 2 0 1 9 $12 $24 ($2) Ending ARR Net Burn ($ in M) BEST > 1.5x $12M (= $24 - $12) $2M 6.0x BVP Efficiency Score GOOD BETTERNet New ARR Net Burn = < 0.5x 0.5x – 1.5x = BVP EFFICIENCY SCORE (<$30M ARR)
  42. 42. S A A S T R A N N U A L 2 0 1 9 HOW TO CALCULATE YOUR GRIT SCORE +++Growth (ARR) In The Bank Targeted Spend (Efficiency) Retention Is Your Best Friend %AnnualNet Retention %YoYGrowth YearsofRunway NetNewARR/ NetBurn 0.5–1.5x80–150% 1–3Years50–200% = GRIT SCORE 3–4 4–6 >6 GOOD BETTER BEST
  43. 43. S A A S T R A N N U A L 2 0 1 9 EXAMPLE 1 – TWILIO (<$5M ARR) +++ %AnnualNet Retention %YoYGrowth Years ofRunway NetNewARR/ NetBurn 0.5–1.5x80–150% 1–3Years50–200% = GRIT SCORE BEST 1.5 (1.5xEfficiency) 2 (2Years) 3 (300%+Growth) 1.6 (160%Retention) 8.1 G I TR +++ =
  44. 44. S A A S T R A N N U A L 2 0 1 9 EXAMPLE 1 – SERVICETITAN (<$5M ARR) +++ %AnnualNet Retention %YoYGrowth Years ofRunway NetNewARR/ NetBurn 0.5–1.5x80–150% 1–3Years50–200% = GRIT SCORE BEST 3.4 (3.4xEfficiency) 2 (2Years) 2 (200%+Growth) 0.9 (90%Retention) 8.3 G I TR +++ =
  45. 45. 2019 PREDICTIONS
  46. 46. #1 ROBOTS TO THE RESCUE AGRICULTURE ACCOUNTING CUSTOMER SUPPORT MARKETING AUDIT FRAUD SALES HEALTHCARE S A A S T R A N N U A L 2 0 1 9
  47. 47. #2 PRODUCT HAS PURSE STRINGS $PRODUCT SALES SERVICES SUPPORT MARKETING S A A S T R A N N U A L 2 0 1 9
  48. 48. #3 OPENSOURCE MAKES MONEY BiggestIPOEver DeepBenchofStrong Privates LargestM&As S A A S T R A N N U A L 2 0 1 9
  49. 49. #4 DEEPER VERTICALIZATION OF MOBILE VERTICALSOFTWARE CONSTRUCTION FIELD SERVICES RETAIL SALES EDUCATIONWORKFORCE MGMT SAFETY/COMPLIANCE FLEET TRANSPORTATION REAL ESTATE RECRUITING S A A S T R A N N U A L 2 0 1 9
  50. 50. #5 LOW CODE/NO CODE Developer BusinessAppsEasy Automation
  51. 51. BESSEMER’S 5 PREDICTIONS FOR 2019 1 Robots to the rescue Product has purse strings2 Opensource makes money3 Deeper verticalization of mobile4 Low code/no code5
  52. 52. CLOUD REIGNS $1 TRILLION
  53. 53. Thank You www.bvp.com/cloud
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What goes into building an enduring cloud business? Bessemer investors Byron Deeter, Kristina Sheen, and Anna Khan reveal the G.R.I.T. framework and ways for cloud founders to develop new levels of operational rigor. In this presentation, Bessemer unveils insights into the cloud industry, Good, Better, Best frameworks for SaaS startups, and the 2019 technology trends and predictions Bessemer is most excited about. Follow the Bessemer Cloud Team on Twitter: @bdeeter @kshenster @annarchyy About Bessemer Venture Partners: Bessemer Venture Partners was born from innovations in steel that literally forged modern building and manufacturing. Today, we work with people who want to create revolutions of their own. We've been fortunate to be a part of over 120 IPOs in the last 50 years, including Shopify, Yelp, LinkedIn, Skype, LifeLock, Twilio, SendGrid, DocuSign, Wix, Box, and MindBody. www.bvp.com @BessemerVP

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