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Bessemer's State of the Cloud 2020

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In Bessemer’s State of the Cloud 2020 Report, we distill twenty years of data on the private and public cloud market trends, dive into the time tested tenets that early-stage cloud founders need to prioritize for growth, and of course, share our predictions that explain the emerging categories we’re eyeing to spot promising new companies.

Since the early 2000s, the industry has seen exponential growth, both in private and public spheres. Many companies have cloud strategies in place, but they are amidst their digital transformations. We believe the future of technology is forged in the cloud, and after two decades of growth it’s just the beginning.

In a time when founders and investors are faced with unprecedented market volatility, it is especially timely to step back and look at the long arc of technology, and the cloud computing revolution in particular.

Source: bvp.com/cloud

Bessemer Venture Partners (Byron Deeter, Elliott Robinson, Hansae Catlett, Mary D'Onofrio)

Published in: Technology
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Bessemer's State of the Cloud 2020

  1. 1. Elliott Robinson Partner @TheValuesVC Byron Deeter Partner @bdeeter State of the Cloud 2020 The World Goes Cloud-First Hansae Catlett Investor Mary D’Onofrio Investor @mcadonofrio
  2. 2. We’ve had some skeptics about cloud computing through the years...
  3. 3. “ Idiocy. Crap. Gibberish. Crazy. It’s this nonsense. It’s not water vapor! All it is, is a computer attached to a network!” LARRY ELLISON
  4. 4. “It’s stupidity. It’s worse than stupidity.” RICHARD STALLMAN
  5. 5. “Mice Nuts” STEVE BALLMER
  6. 6. Where were we?!
  7. 7. Exponential cloud growth 2000-2020 # of Private Cloud Unicorns | # of Private Cloud Companies Top private cloud companies 2000 0 | 10’s
  8. 8. Exponential cloud growth 2000-2020 0 | 10’s 1 | 100’s 2000 2010 Top private cloud companies # of Private Cloud Unicorns | # of Private Cloud Companies
  9. 9. Exponential cloud growth 2000-2020 0 | 10’s 1 | 100’s 86 | 1000’s 2000 2010 2020 Top private cloud companies # of Private Cloud Unicorns | # of Private Cloud Companies *Data as of February 2020
  10. 10. 2008 2015 2020 $13.89B total market cap $114.98B total market cap (8.2x) $616.1B total market cap (44x) $175B $150B $125B $100B $75B $50B $25B $0B Top 5 public cloud companies Up 44x 2008-2020
  11. 11. Public Cloud Landscape 2000 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 Revenue ($M) FCFMargin Source: CapIQ; Bessemer Venture Partners analysis Note: Zero “majority-cloud” public companies. For these charts, public companies are included beginning in the year when cloud/SaaS revenues are estimated to have comprised >50% of total revenue.
  12. 12. Public Cloud Landscape 2001 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 Revenue ($M) FCFMargin Source: CapIQ; Bessemer Venture Partners analysis Note: Zero majority-cloud public companies.
  13. 13. Public Cloud Landscape 2002 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Ultimate Software Group.
  14. 14. Public Cloud Landscape 2003 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis
  15. 15. Public Cloud Landscape 2004 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Blackbaud, Blackboard, Concur, and Salesforce.
  16. 16. Public Cloud Landscape 2005 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Dealertrack, Kenexa, and Taleo.
  17. 17. Public Cloud Landscape 2006 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Omniture.
  18. 18. Public Cloud Landscape 2007 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Athenahealth, Constant Contact, NetSuite, and SuccessFactors.
  19. 19. Public Cloud Landscape 2008 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis
  20. 20. Public Cloud Landscape 2009 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added LogMeIn and Medidata Solutions; removed Omniture (acquired by Adobe).
  21. 21. Public Cloud Landscape 2010 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Ariba, BroadSoft, j2 Global, RealPage, RightNow Technologies, and SPS Commerce.
  22. 22. Public Cloud Landscape 2011 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Cornerstone OnDemand, LinkedIn, and Responsys; removed Blackboard (Providence Equity Partners) and RightNow Technologies (Oracle).
  23. 23. Public Cloud Landscape 2012 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Demandware, Eloqua, ExactTarget, Fleetmatics, LifeLock, Proofpoint, Qualys, ServiceNow, Workday, and Xero; removed Ariba (SAP), Kenexa (IBM), SuccessFactors (SAP), and Taleo (Oracle).
  24. 24. Public Cloud Landscape 2013 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Cvent, Marketo, RingCentral, Tableau, Veeva, and Wix.com; removed Eloqua (Oracle), ExactTarget (Salesforce), and Responsys (Oracle).
  25. 25. Public Cloud Landscape 2014 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added 2U, Five9, HubSpot, New Relic, Paycom, Paylocity, Q2, Workiva, and Zendesk; removed Concur (SAP).
  26. 26. Public Cloud Landscape 2015 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added AppFolio, Atlassian, Box, Instructure, Mimecast, MINDBODY, PayPal, Shopify, Square, and Xactly; removed Dealertrack (Cox).
  27. 27. Public Cloud Landscape 2016 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Apptio, BlackLine, Coupa, Everbridge, Talend, and Twilio; removed Constant Contact (Endurance International), Cvent (Vista Equity Partners), Demandware (Salesforce), Fleetmatics (Verizon), LifeLock (Symantec), LinkedIn (Microsoft), Marketo (Vista Equity Partners / Adobe), and NetSuite (Oracle).
  28. 28. Public Cloud Landscape 2017 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Alteryx, Appian, Altair, Cloudera, Forescout, MongoDB, Mulesoft, Okta, SendGrid, and Yext; removed BroadSoft (Cisco) and Xactly (Vista Equity Partners).
  29. 29. Public Cloud Landscape 2018 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Added Anaplan, Avalara, Carbon Black, DocuSign, Domo, Dropbox, Elastic, Eventbrite, Pivotal, Pluralsight, Smartsheet, SurveyMonkey, Tenable, Zscaler, and Zuora; removed Apptio (Vista Equity Partners), Athenahealth (Veritas Capital), MINDBODY (Vista Equity Partners), and MuleSoft (Salesforce).
  30. 30. Public Cloud Landscape 2019 -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M)Source: CapIQ; Bessemer Venture Partners analysis Note: Added Adobe, Bill.com, Cloudflare, CrowdStrike, Datadog, Dynatrace, Fastly, Medallia, PagerDuty, Slack, and Zoom; removed Carbon Black (VMware), Medidata Solutions (Dassault Systemes), Pivotal (VMware), SendGrid (Twilio), Tableau (Salesforce), and Ultimate Software Group (Hellman & Friedman Capital Partners). 2019 became majority-SaaS
  31. 31. Public Cloud Landscape 2020 (LTM) -60% -40% -20% 0% 20% 40% 60% 80% 100% $40 $400 $4,000 $40,000 FCFMargin Revenue ($M) Source: CapIQ; Bessemer Venture Partners analysis Note: Market cap data as of March 9, 2020.
  32. 32. $0 $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 In 2015, we predicted the cloud market cap would hit $500B in 2020 65% CAGR 25% CAGR $BMarketCap 2020 $500B
  33. 33. $0 $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Instead, we hit the mark 2 years earlier in March 2018 65% CAGR $BMarketCap 2018 35% CAGR $500B
  34. 34. $0 $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Public cloud: $1 trillion+ Total cloud market cap 65% CAGR 35% CAGR $BMarketCap 45% CAGR $1T $690B Feb 5th 2019
  35. 35. $0 $200 $400 $600 $800 $1,000 $1,200 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Public cloud: $1 trillion+ Total cloud market cap 65% CAGR 35% CAGR $BMarketCap 45% CAGR25% CAGR Feb 5th 2020 $1T $690B Feb 5th 2019
  36. 36. SaaS crosses $100B run rate in 2019 Source: Synergy Research Group 0% 5% 10% 15% 20% 25% Worldwide Market Share Q1 2019 Enterprise SaaS Vendor Market Share and Revenue Growth Cisco, Google, IBM, ServiceNow, Workday, etc. Annual Growth 34% 21% 29% 39% 25% 26%NEXT 10
  37. 37. IaaS crosses $100B run rate in 2019 Source: Canalys; SEC Form 10-K filings OTHERS 32.4% 17.6% 6% 5.4% 38.5% Amazon dominates public market Annual Growth 33.2% 62.3% 67.7% 71.1% 24.4%Salesforce, IBM, Cloud, etc. Worldwide Market Share Q4 2019
  38. 38. 4/21/20 • Confidential 94%We’re living in a cloud-first world
  39. 39. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Cloud is eating software Cloud will become majority of software market within 5 years Software Cloud Source: CapIQ; Bessemer Venture Partners analysis
  40. 40. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Cloud is eating software Software Cloud Cloud will become majority of software market within 5 years Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10%
  41. 41. Cloud is eating software: 2025 Cloud will consume software in 10-15 years Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10%
  42. 42. Cloud is eating software: 2026 Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10% Cloud will consume software in 10-15 years
  43. 43. Cloud is eating software: 2027 Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10% Cloud will consume software in 10-15 years
  44. 44. Cloud is eating software: 2028 Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10% Cloud will consume software in 10-15 years
  45. 45. Cloud is eating software: 2029 Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10% Cloud will consume software in 10-15 years
  46. 46. Cloud is eating software: 2030 Cloud will consume software in 10-15 years Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10%
  47. 47. Cloud is eating software: 2031 Cloud will consume software in 10-15 years Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10%
  48. 48. Cloud is eating software: 2032 Cloud will consume software in 10-15 years Source: CapIQ; Bessemer Venture Partners analysis; Cloud CAGR – 20%, Software CAGR – 10%
  49. 49. Cloud is eating software: 2032 Cloud will consume software in 10-15 years
  50. 50. $172B Cloud
  51. 51. $456B Software $172B Cloud
  52. 52. $3.7T Technology $456B Software $172B Cloud
  53. 53. $3.7T Technology $88T World GDP $456B Software $172B Cloud The cloud will grow beyond enterprise software market… …penetrating broader tech market and world GDP Source: Gartner; World Bank; “Investing in the Cloud: From Gold Rush to Hunger Games and Beyond”
  54. 54. In the cloud economy, scale wins.1 2 3 4 5 6 7 8 9 10 Growth at optimal cost. Invest behind the cloud sales and marketing learning curve. Product as a competitive advantage. Master the 5 C’s of cloud finance. Discover your secret KPI(s). Customer success is company success. Impact through engagement or insights. Tone starts at the top. Map your fuel stops. (Bonus) Run the “Public Playbook.” 1 3 9
  55. 55. LAW 1: In the cloud economy, scale wins “Reaching scale not only means you’ve captured a large slice of the market, but also that you’ve set the pace of innovation for the rest of the industry.” 61 Tobias Lütke CEO & co-founder
  56. 56. In the cloud economy, scale wins Video conferencing 64% 26% 10% market share market share market share
  57. 57. $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 0 1 2 3 4 5 6 7 8 9 10 11 12 Cloud category leaders scale more rapidly than ever before $ARRinMillions Years from $1M to $100M
  58. 58. The Second Act sparks a virtuous cycle for market leadership and expands your TAM $0 $25 $50 $75 $100 $125 $150 $175 $200 2012 2013 2014 2015 Subscription Solutions Payment Solutions $23.7M $50.3M $105.0M $205.2M +95% +109% +112%
  59. 59. A successful “Second Act” drives scale Payroll, CapitalPoint of Sale Voice, Video & Chat Email CORE TAM/PRODUCT “SECOND ACT” Secrets Provisioning Networking
  60. 60. LAW 3: Invest behind the cloud sales and marketing learning curve "Be cautious with investments as you test and iterate. Fail fast. Be aggressive and scale your go-to-market when something is really working.” 66 Tooey Courtemanche CEO & co-founder
  61. 61. The sales and marketing learning curve Initiation Founder Led Sales Transition Sales Led Sales Execution Scalable S&M NAIL IT before you SCALE IT!
  62. 62. LAW 9: Tone starts at the top “It’s important for leaders to address talent and culture like any company would address churn or competitive differentiation.” 68 Jennifer Tejada CEO
  63. 63. Law 9: Tone starts at the top 69 Volunteer days 20% Project at Google Diversity in leadership positions and hiring best practices Conduct 360 feedback (Founder/CEO included) Report on employee engagement metrics Define your culture and core values early State your company’s mission and vision clearly 1 2 3 INITIATIVE EXAMPLES SOFTWARE TO HELP DIVERSITY + INCLUSION FOUNDER / CEO BEST PRACTICES:
  64. 64. 70 Companies give back 1% of equity, product, and time
  65. 65. 4/21/20 • Confidential 2020 PREDICTIONS
  66. 66. Prediction 1: The future of work will be remote CULTURE KNOWLEDGE SHARING ONBOARDING & MANAGEMENT GLOBAL HR & PAYROLL
  67. 67. Prediction 2: Privacy debt will be the new technical debt Jumbo DATA DE-IDENTIFICATION & ANONYMIZATION CONSUMER PRIVACY MANAGEMENT PRIVACY WORKFLOW & OPERATIONS DATA CATALOGUING & GOVERNANCE DATA SCANNING & INVENTORY
  68. 68. Prediction 3: The cloud industry will continue to proliferate around the globe
  69. 69. Prediction 4: B2B transactions will move online Freight Forwarding Used Car Auctions Custom Manufacturing Enterprise Procurement Transportation Management Wholesale Alcohol Wholesale Cannabis Dental Supplies Long-haul Trucking Restaurant Ingredients Flowers Boutique Retailers
  70. 70. Prediction 5: The API universe will drive innovation across all industries Shipping Banking Payments Email SSO Communications Storage Notifications Customer Engagement Enterprise Search Spreadsheets Media Messaging Payments Monetization Fraud Prevention Payroll Streaming Infrastructure Background Checks Location Healthcare Logistics Security Ecommerce Dev Documents Web hosting Contextual Data Video hosting streaming
  71. 71. Prediction 6: We’re entering the age of “automation-at-scale” INTEGRATED PLATFORM AS A SERVICE RPA AND ADJACENCIES SOFTWARE-DEFINED MANAGEMENT LOW CODE / NO CODE APP DEVELOPMENT
  72. 72. 4/21/20 • Confidential 2020 BESSEMER’S 6 PREDICTIONS The future of work will be remote Privacy debt will be the new technical debt The cloud industry will continue to proliferate around the globe The API universe will drive innovation across all industries B2B transactions will move online We’re entering the age of “automation-at-scale” 1 2 3 4 5 6
  73. 73. Go to bvp.com/cloud Cloud Giants Interviews with top CEOs State of the Cloud 2020 Get the full report
  74. 74. The forecast calls for a high chance of cloud 80 68 MON Cloudy 64 TUE Cloudy 63 WED Cloudy 70 THUR Cloudy 71 FRI Cloudy
  75. 75. 4/21/20 • Confidential Resources for cloud founders Data, reports, and best practices on the industry
  76. 76. Table of contents Topics The 6 C’s of cloud finance Bessemer frameworks and Good, Better, Best Recommended reading
  77. 77. The 6 C’s of Cloud Finance The 6 metrics you should use to track and to measure your cloud business CashConversion Score 0.0x 6 CARR %Growth 1 CAC Payback Months 2 CLTV 3 Churn % 4 CASHFLOW %Margin 5
  78. 78. Committed Annual Recurring Revenue (CARR) What is CARR? The subscription, recurring revenue that your cloud business earns. CARR includes contracted but not yet live ARR, nets out churned and projected churned ARR, and is normalized to a 1Y period, hence “annual”. Why does CARR Matter? YoY growth of CARR tracks business health and benchmarks progress. CARR is also a leading indicator of revenue. CARR multiples are used to value cloud businesses in the private markets Calculating CARR New Logo ARR (incl. signed but not live ARR) + Upsell ARR (incl. signed but not live ARR) - Churned ARR (incl. projected churned) - Downsell ARR (incl. projected downsell) Committed Monthly Recurring Revenue (CMRR) CMRR = CARR / 12 Benchmark the growth of your cloud business GOOD 50-100% CARR %Growth BETTER BEST 100-200% 200%+ 1 SeriesA/B 50% 50-100% 100%+ SeriesC+
  79. 79. Customer Acquisition Cost (CAC) Payback What is CAC? Total sales, marketing, customer success, etc. costs to acquire a customer. Generally calculated quarterly What is CAC Payback? The time it takes to recover CAC, generally on a gross profit basis Why does CAC Payback Matter? Only after the CAC payback period are customers profitable to your business; therefore, the shorter the better Calculating CAC Payback Prior Period S&M Expense / [(Quarterly Net New MRR) * Gross Margin] Understand how effective your S&M organization is GOOD 12 CACPayback Months BETTER BEST 6-12 <6 2 SMB 18 9-18 <9 Mid-Market 24 12-24 <12 Enterprise
  80. 80. Customer Lifetime Value (CLTV) / CAC What is CLTV? Margin-affected value of a customer to a business over the course of its relationship Why does CLTV / CAC Matter? It is the relationship between acquisition cost and customer value – over 1x means the customer is net profitable to a business. The higher the CLTV / CAC, the more valuable a customer is Calculating CLTV Customer Lifetime = 1 / (1 – Customer Retention Rate) Customer Lifetime Value = Customer Lifetime * Average Revenue per Customer * Profit Gross Margin Calculating CLTV / CAC Customer Lifetime Value / Customer Acquisition Cost Constraining acquisition cost by the value of your customers GOOD 3x CLTV/CAC BETTER BEST 3-5x 5x+ 3
  81. 81. Churn What is Dollar Churn? The dollars that churned or downsell customers represented e Why does Dollar Churn Matter? Only net new ARR provides growth. Churned / downsell ARR needs to be replaced before growth starts; therefore, it is difficult to grow with high churn numbers What is Negative Dollar Churn (Net Retention)? Customers pay you even more money than they did when they initially contracted. This includes expansion or upsell ARR Calculating Negative Dollar Churn (Net Retention) (Starting CARR + Upsell CARR – Downsell CARR – Churned CARR) / Starting CARR Calculating Gross Dollar Churn (- Downsell CARR - Churned CARR) / Starting CARR Understand the stickiness of your platform GOOD Churn % BETTER BEST 4 SMB Mid-Market Enterprise Net Gross Net Gross Net Gross 10-20% 20-30% 0-10% 20% NetNeg10% 15% 0-10% 15-20% NetNeg10%-0% 10-20% NetNeg10-20% 10-15% NetNeg <15% NetNeg10%+ <10% NetNeg20%+ <10%
  82. 82. Cash Flow What is Free Cash Flow (FCF)? Cash generated after operating and capital expenditures, which adds back non- cash expenses like stock-based compensation Why does FCF Matter? When positive, FCF dollars are the reinvestable dollars that you can put back into your business or return to shareholders; when negative, your runway is limited by the amount of FCF you burn every year Calculating FCF (Earnings before interest and tax * (1 – tax rate)) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditures + Non-Cash Charges Calculating FCF Margin FCF / Revenue Spending rationally relative to scale GOOD -50-0% CASHFLOW %Margin BETTER BEST Breakeven CF+ 5
  83. 83. Cash Conversion Score (CCS) What is Cash Conversion Score (CCS)? The ratio of CARR to capital raised to date (debt + equity) minus the cash on the balance sheet Why does CCS Matter? It measures the return on invested capital into a business, showing how well invested dollars convert into CARR, on which a cloud business will generate a multiple. It is thereby correlated to the IRR that investors will earn by investing in your cloud business. It is also a high-level metric to measure the efficiency of a business; it is impossible to have a high CCS without a scalable S&M org and product / market fit Calculating CCS CARR / (Capital Raised to Date – Cash) Understanding return on invested capital in your cloud business GOOD 0.25-0.5x CCS 0.0x BETTER BEST 0.5-1x 1x+ 6
  84. 84. The 6 C’s of Cloud Finance The 6 metrics you should use to track and to measure your cloud business GOOD BETTER BEST 0.25-0.5x CCS 0.0x 0.5-1x 1x+ 6 50-100% CARR %Growth SeriesA/B 100-200% 200%+ 1 CACPayback Months Enterprise 2 24 12-24 <12 3x CLTV 3-5x 5x+ 3 Churn % Enterprise 4 NetNegative 10% NetNegative 10-20% NetNegative 20%+ -50-0% CASHFLOW %Margin Breakeven CF+ 5
  85. 85. Recommended reading from Bessemer Roadmaps • The 10 laws of cloud • The developer laws • A cloud for every industry • B2B Marketplaces • Data Privacy Engineering • Remote Work States of the Cloud • State of the Cloud 2019 • State of the Cloud 2019: Europa • State of the Cloud 2018 • State of the Cloud 2017 • State of the Cloud 2016 • State of the Cloud 2015 Insights • Cash conversion score • How fast should a cloud company grow? • Five accounting metrics for cloud companies • An inside look at our investment process for Twilio • Byron Deeter on investing in 14 different billion-dollar cloud companies External reports: • Goldman Software Sector Update • 2019 Keybanc Capital Markets SaaS Survey • Wisdom Tree Cloud Computing Fund
  86. 86. Thank You bvp.com/cloud @BessemerVP

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