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State of the Cloud 2022

Bessemer uncovers the year’s top trends and insights in the global cloud economy, including how the model is only getting better, and why being a Centaur is the new milestone to celebrate. Read the full report: https://www.bvp.com/atlas/state-of-the-cloud-2022

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State of the
Cloud 2022
Kent Bennett
Partner
Mike Droesch
Partner
Sisi Song
Vice President
Caty Rea
Investor
Aleeza Hashmi
Investor
Adam Fisher
Partner
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1
TOTAL PUBLIC CLOUD MARKET CAP
Feb 2020
Mar 2021
Nov 2021
$1T
$2.4T
+140%
+19%
$0T
$1.5T
$3T
$2.7T
April 2022
-41%
$1.6T
EMCLOUD AVERAGES
Average growth rate of 41.5%
Average gross margin of 71.1%
Average efficiency score of 45.4%
Proceeds from U.S. IPOs have
reached a record $142.4 billion in
2021 but pace has slowed in 2022
2021 was a blockbuster
year for tech IPOs
42.7
54.9
85.3
30
18.8
35.5
54.2
46.4
78.2
142.4
$0B
$25B
$50B
$75B
$100B
$125B
$150B
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: Renaissance Capital
Proceeds from Global M&A
reached $1240 billion in 2021
In 2021, global tech M&A made
history
2021
2022
Source: SP Global
192
248
393
594
470
349
590
476
630
1240
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Proceeds
($B)
Deals
VC funding dropped 20%
quarter-over-quarter in Q1 of 2022
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
7265 7125 7257
6796
6381 6191
6966 7119
7933
8280
9723
9256
8835
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
$0B
$20B
$40B
$60B
$80B
$100B
$120B
$140B
$160B
$180B
$200B
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22
Funding ($B) # of Deals
Funding ($B) # of Deals
VC industry eclipses $100 billion
in fundraising
45
74 71
87
$0B
$20B
$40B
$60B
$80B
$100B
$120B
$140B
2017 2018 2019 2020 2021
Capital raised ($B)
128.3
Enormous amount of
capital ear-marked for
SaaS-based investing
$128.3B
+47%
YOY
Source: Pitchbook

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State of the Cloud 2022

  • 1. State of the Cloud 2022 Kent Bennett Partner Mike Droesch Partner Sisi Song Vice President Caty Rea Investor Aleeza Hashmi Investor Adam Fisher Partner
  • 2. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Q1 TOTAL PUBLIC CLOUD MARKET CAP Feb 2020 Mar 2021 Nov 2021 $1T $2.4T +140% +19% $0T $1.5T $3T $2.7T April 2022 -41% $1.6T EMCLOUD AVERAGES Average growth rate of 41.5% Average gross margin of 71.1% Average efficiency score of 45.4%
  • 3. Proceeds from U.S. IPOs have reached a record $142.4 billion in 2021 but pace has slowed in 2022 2021 was a blockbuster year for tech IPOs 42.7 54.9 85.3 30 18.8 35.5 54.2 46.4 78.2 142.4 $0B $25B $50B $75B $100B $125B $150B 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: Renaissance Capital
  • 4. Proceeds from Global M&A reached $1240 billion in 2021 In 2021, global tech M&A made history 2021 2022 Source: SP Global 192 248 393 594 470 349 590 476 630 1240 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Proceeds ($B) Deals
  • 5. VC funding dropped 20% quarter-over-quarter in Q1 of 2022 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 7265 7125 7257 6796 6381 6191 6966 7119 7933 8280 9723 9256 8835 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 $0B $20B $40B $60B $80B $100B $120B $140B $160B $180B $200B Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Funding ($B) # of Deals Funding ($B) # of Deals
  • 6. VC industry eclipses $100 billion in fundraising 45 74 71 87 $0B $20B $40B $60B $80B $100B $120B $140B 2017 2018 2019 2020 2021 Capital raised ($B) 128.3 Enormous amount of capital ear-marked for SaaS-based investing $128.3B +47% YOY Source: Pitchbook
  • 7. VC realizations for the record books 743+ $5.8T $1.2T Global tech M&A Companies went public on Nasdaq in 2021 Global M&A topped to a new high in 2021 Source: Pitchbook
  • 8. Cloud stocks reset below FAANG, nearing S&P MT SAAS, EMCLOUD, FAANG, and Major Indexes Performance since 2020 -50% 0% 50% 100% 150% Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Percent Change EMCLOUD MT SAAS FAANG SPX EMCLOUD Performance: Approx. +40% MT SAAS Performance: Approx. +34% FAANG Performance: Approx. +50% S&P Performance: Approx. +35%
  • 9. The fundamentals of the cloud are strengthening The recurring revenue SaaS model remains an incredibly strong business model…
  • 10. …perhaps the greatest model in the history of the world?
  • 11. Let’s go back to basics of the cloud model Best-in-class cloud companies turn $1 of investment into $18 of enterprise value in 12 months $1 of S&M $18 of EV $1 of S&M Recurring Gross Profit pays back S&M in 12 months S&M PAY BACK $0 $5 $10 $15 $20 1 2 3 4 5 6 7 8 9 10 11 12 $1.2 of ARR $18 of Enterprise Value 15×ARR ENTERPRISE VALUE
  • 12. Just how powerful is this model? Notes: Based on Capital IQ data and BVP Analysis. Comparing net new gross profit added in 2021 to average S&M expense across 2020 and 2021. IRR calculated assuming S&M investment generates a recurring gross profit stream that retains at a 95% rate annually over 4 years and is valued at a 10X terminal value in year 5. GROSS PROFIT RETURN ON S&M SPEND ACROSS BVP CLOUD INDEX 0% 25% 50% 75% 100% 125% 150% 175% IRR Avg 68% The best SaaS companies turn a $1 of sales and marketing spend into recurring gross profit at an incredible rate. 0% 25% 50% 75% 100% 125% 150% 175% IRR Avg 68% 0% 25% 50% 75% 100% 125% 150% 175% IRR Avg 68%
  • 13. SaaS Payments and Lending as a “Second Act” Indirect monetization models Cheap or free software as an acquisition hook, with new levers to monetize SaaS products and business models are getting even better… ⎻ Card issuing ⎻ Payroll ⎻ Banking ⎻ Group Purchasing ⎻ Insurance ⎻ Logistics ⎻ Data and advertising ⎻ Payments & Factoring NEW CHAPTER IN THE CLOUD PLAYBOOK
  • 14. SaaS Lead with financial services, and follow with software Payments and Lending as a “Second Act” All indirect monetization models Cheap or free software as an acquisition hook, with new levers to monetize SaaS products and business models are getting even better… ⎻ Financial Services ⎻ Group Purchasing ⎻ Data and advertising ⎻ Insurance ⎻ Logistics ⎻ Usage-based pricing ⎻ V1.0 - Payments & Factoring ⎻ V2.0 - Card issuing, Payroll, Banking… NEW CHAPTER IN THE CLOUD PLAYBOOK
  • 15. SaaS Lead with financial services, and follow with software Payments and Lending as a “Second Act” All indirect monetization models Cheap or free software as an acquisition hook, with new levers to monetize SaaS products and business models are getting even better… ⎻ Payments & Factoring NEW CHAPTER IN THE CLOUD PLAYBOOK ⎻ Card issuing ⎻ Payroll ⎻ Banking ⎻ Group Purchasing ⎻ Insurance ⎻ Logistics ⎻ Data and advertising
  • 16. Powered by a wave of APIs offering easy building blocks: PREDICTION Indirect monetization becomes the new “First Act” PAYMENTS CARD ISSUING PAYROLL INSURANCE BANKING LENDING
  • 17. PAYMENTS CARD ISSUING PAYROLL INSURANCE BANKING Powered by a wave of APIs offering easy building blocks: PREDICTION Indirect monetization becomes the new “First Act” COMPANIES LEANING INTO INDIRECT MONETIZATION LENDING
  • 18. Cloud onramp improving for even late adopters Early + Late Majority Trust the public cloud with sensitive data and workloads Bring the cloud to the data Containerize and deploy apps to private clouds Cloud-Native On-Prem VPCs and Hybrid Clouds Early Adopters
  • 19. PREDICTION Cloud goes to market CLOUD MARKETPLACES NOTABLE MARKETPLACE SELLERS CLOUD MARKETPLACE MIDDLEWARE
  • 20. The cloud…is selling the cloud 2 4 8 14 27 50 $0B $10B $20B $30B $40B $50B 2020 2021 2022 2023 2024 2025 CLOUD MARKET GMV FORECAST ($B) We predict cloud marketplace procecurement goes mainstream PREDICTION By 2024, 80% of Cloud 100 Companies will be actively selling through cloud marketplaces. 88% CAGR
  • 21. Enterprise spend on IT continues to climb of CIOs expect to spend the same or more 92% of CIOs plan to increase spend 49% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Q4 2020 Q4 2021 Increase Remain stable 44 44 CIO EXPECTATIONS ON SPENDING IN THE NEXT THREE YEARS 43 49 Stronger SaaS products, business models, and delivery methods drive increasingly strong enterprise demand for cloud products
  • 22. COVID drove unprecedented turnover in the global labor markets 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 2017 2018 2019 2020 2021 2022 % U.S. QUIT RATE NEARED A 20-YEAR HIGH Since May 2021, there are more job openings than unemployment. 2.9% Quits rate 3.6% Unemployment rate Unemployment is at its lowest since 1969
  • 23. Population decline is a global crisis 0 0.5 1 1.5 2 2.5 1980 1990 2000 2010 2020 United States China India Source: worlddata.info China, India, U.S. are the top three most populous countries and contribute to 40% of world’s population. POPULATION GROWTH RATE Talent shortage is not just caused by COVID-19; around the world, there are declining birth rates and aging populations. 0.23% China 0.99% India 0.35% United States
  • 24. Cloud software will help close the gap in global productivity LABOR SHORTAGE & WELLNESS PRODUCTIVITY & COLLABORATION FREELANCERS/ CREATORS ECONOMY WORK AUTOMATION SUPPLY CHAIN PREDICTION
  • 25. PREDICTION 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
  • 26. 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%
  • 27. Global maturity varies widely Public cloud spend is only ~10% of total IT spend ($4T) across the globe 10% % of Global GDP 27 27 6 36 4 % of Global Public Cloud Spending 55 26 2.6 15 1.2 % of IT spending on cloud 15 10 7.5 4.7 2.8 LATAM Europe APAC North America MENA In 2021, end users spent $396 billion on public cloud services
  • 28. Major cloud players born across the globe MARKET MAP OF SELECT REGIONAL CLOUD LEADERS THAT HAVE SURPASSED $100M IN ARR * Public company Source: Based on founding location or primary office listed in Pitchbook, CapIQ, Crunchbase * * * * * * * * * * * * * *
  • 29. PREDICTION Cloud gets local to go fully global HORIZONTAL LEADERS THAT FOCUS ON LOCALIZATION LATAM APAC EMEA
  • 31. ~520 unicorns were minted last year alone 1.5x unicorns minted every day 120% increase in unicorns last year alone 1,000+ unicorns now exist
  • 32. Being a unicorn is overhyped 123 226 330 438 958 2017 2018 2019 2020 2021 Q1 2022 +1,000 unicorns +120% increase Source: CB Insights ~520 unicorns were minted last year alone 120% increase in unicorns last year alone 1,000+ unicorns now exist 1.5x unicorns minted every day
  • 34. A rare breed $100M ARR with ARR defined as annual recurring or subscription revenue Introducing the Centaur We estimate that while 520 new ‘unicorns’ were minted last year, ~60 new private companies achieved Centaur status, including:
  • 35. Unicorns require magical thinking. Centaurs do not. ~150 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.
  • 36. 104 108 520 464 2019 2020 2021 Annualized Q1'22 Explosion of new unicorns tracks with the rise (and fall) of public valuations NEW UNICORNS $1T $2.4T $2.7T $1.6T
  • 37. Centaurs offer a more accurate pulse on overall cloud health NEW CENTAURS ~35 ~40 ~60 ~70 2019 2020 2021 Annualized Q1'22 Steady growth in Centaurs shows enduring strength of the cloud
  • 38. 40 / Confidential and Not for Distribution $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 Bessemer has a long history of helping cloud companies achieve Centaur status
  • 39. Go to bvp.com/cloud Introducing The Centaur bvp.com/centaur Scaling to 100M bvp.com/scale State of the Cloud 2022 bvp.com/atlas/state-of-the-cloud-2022
  • 40. 2022 is the year of the Centaur PREDICTION
  • 41. Geography deep dives Vishal Gupta Partner Anant Vidur Puri Partner Alex Ferrara Partner Cloud economy insights from our global teams in China, Europe, India, and Israel. Amit Karp Partner Adam Fisher Partner Naama Schlamm Vice President Ariel Sterman Vice President Dhruv Jain Investor Talia Goldberg Partner Sisi Song Vice President Bryan Wu Partner
  • 42. Home to 300+ unicorns and half of the world’s most valuable Internet companies, China looks to the potential of cloud and SaaS to fuel the economy. 0 10 20 30 40 50 2014 2016 2018 2020 42 17 1 The number of public and private cloud companies in China with >$15M ARR is accelerating. Today China SaaS ecosystem update 42+ SAAS COMPANIES EXCEEDING $15M ARR 45% CLOUD SPEND GROWTH, THE HIGHEST RATE IN THE WORLD $1.6T+ GOVERNMENT FUNDING THROUHG 2025 TO DEVELOP CLOUD, AI, 5G ETC. Source: Bessemer research
  • 43. Leading Chinese SaaS companies are innovators not imitators CAPITALIZES ON SUPPLY CHAIN ADVANTAGE 2. INNOVATIVE GTM 1. INNOVATIVE PRODUCT LEVERAGES EFFICIENT B2B2C DISTRIBUTION CHANNELS BUILT BY INTERNET CONGLOMERATES 1.2B MAU 220M MAU 98M MAU *Bessemer portfolios * *
  • 44. European tech ecosystem update $133.4B BILLION IN VC-BACKED EUROPEAN EXIT VALUE 1,247 COMPANIES EXITED IN 2021 186 ESTIMATED PUBLIC LISTINGS IN 202! Source: Pitchbook $4.9 $4.2 $10.9 $22.9 $21.7 $16.0 $19.4 $43.8 $18.1 $25.8 $133.4 340 378 420 575 644 564 654 590 704 682 1,247 0 200 400 600 800 1,000 1,200 1,400 $0 $20 $40 $60 $80 $100 $120 $140 $160 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Exit value ($) Exit count In 2021, VC-backed European technology exit values increased +400% year-over-year. Notable 2021 IPOs
  • 45. Capital efficiency of European B2B startups 2.8 2.3 1.1 1 0.8 0.7 0 0.5 1 1.5 2 2.5 3 Eastern EU Southern EU Western EU Nordic EU Germany France Median revenue per total equity funding, B2B startups, ratio 5.6x 4.6x 2.3x 2.1x 1.6x 1.4x U.S. B2B startups .5 Source: Crunchbase, McKinsey
  • 46. Europe SaaS: Good, Better, Best framework ARR Growth 40% 60% 80%+ Technology leadership Net Retention 105% 120% 135%+ GTM maturity Gross Retention 85% 90% 95%+ Gross Margin 60% 65% 80%+ Regulatory barriers FCF Margin -50% -25% 0%+ Management team Good Better Best Other factors GTM Focus Local Regional/Pan EU Global Source: Bessemer research Cloud benchmarks for $50M-$100M ARR
  • 47. India SaaS ecosystem update $50B MARKET SIZE OF INDIA SAAS BY 2030 $4.8B VC DOLLARS INVEST IN ECOSYSTEM IN 2021 42% 69% 165% 125% 85% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% Global SaaS (Cloud Index) Global SaaS ~10-30 M ARR (BVP Portfolio) India SaaS (~10M ARR) India SaaS (~25M ARR) India SaaS (50-100M ARR) Median efficiency score Data (N = 30) for Indian companies growing >70% yoy. Source: BVP research Cloud companies in India demonstrate faster payback cycles and the ability to get to $100M+ ARR with less than $100M in equity capital 165% MEDIAN EFFICIENCY FOR EARLY STAGE
  • 48. India SaaS: Good, Better, Best Framework Potential TAM <$1B $1-5B $5B+ Technology leadership Growth (YoY) <100% 100-150% >150% GTM maturity Net dollar retention 90-120% 120-140% >140% Global expansion Efficiency <100% 100-150% >150% Category competition Gross margin 50-65% 65-80% >80% Management team Good Better Best Other factors CAC payback >24 months 12-24 months <12 months Note: Almost no company will fall in all green in our experience.
  • 49. Israel venture ecosystem update 773 VC DEALS IN THE ISRAEL MARKET IN 2021 $25B VC DOLLARS INVEST IN ECOSYSTEM IN 2021 2021 was a record year in terms of startup funding in Israel with $25B deployed 146% YOY INCREASE IN FUNDING TO STARTUPS IN ISRAEL 3321 4305 4505 5865 7859 10397 25601 405 432 428 509 503 604 773 0 5000 10000 15000 20000 25000 30000 2015 2016 2017 2018 2019 2020 2021 Israel High-Tech Investments Total $m # of Deals Source: IVC-Meitar Israeli Tech Review 2021 +146%
  • 50. Israel cultivates cloud ecosystem that spans diverse categories HORIZONTAL & VERTICAL SAAS CYBER FINTECH Bessemer identifies ~25 cloud companies in the region that have crossed the $100M+ ARR milestone. Drivers of success ENTREPRENEURS ARE BUILDING SCALABLE BUSINESSES VS. ONLY TECHNOLOGIES ABUNDANCE OF CAPITAL LEADS TO INVESTMENT IN PRODUCT AND PEOPLE GROWTH IN REGIONAL STARTUPS CREATES MARKET OF NEW CUSTOMERS