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Bessemer Venture Partners' 2019 State of the Cloud
The State of the Cloud 2019 report highlights the significant growth and demand for cloud companies, evidencing over $90 billion in M&A and a rising public market cap that surpassed $500 billion two years earlier than anticipated. It emphasizes the importance of retention metrics for company valuation, where net retention rates can significantly affect enterprise value. Predictions for 2019 include advancements in automation across various sectors and a trend towards verticalization in software solutions.
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Bessemer Venture Partners' 2019 State of the Cloud
- 1. State Of TheCloud 2019 BYRON DEETER Partner BVP @bdeeter KRISTINA SHEN Partner BVP @kshenster ANNA KHAN Vice President BVP @annarchyy
- 2. Byron Deeter Partner BVP @bdeeter Kristina Shen Partner BVP @kshenster StateOf The Cloud 2019 www.bvp.com/cloud Anna Khan Vice President BVP @annarchyy
- 3. BESSEMER’S TOP 10 LAWS OFCLOUD COMPUTING 2008
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- 5. HOW MANY $1B+ PRIVATECLOUD COMPANIES ARE THERE, TODAY? HOW MANY $1B+ PRIVATE CLOUD COMPANIES ARE THERE, TODAY?
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- 8. S o ur 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
- 9. S A AS 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
- 10. S A AS T R A N N U A L 2 0 1 9
- 11. 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
- 12. ~$44B ALSO ADDEDIN MARKET CAP THROUGH CLOUD IPOS S o u r c e : C a p I Q a n d P i t c h b o o k ( M a r k e t C a p a f t e r D a y 1 o f T r a d i n g . )
- 13. IN FACT THEBUYING DEMAND FOR CLOUD SHARES HAS HIT RECORD HIGHS VCDollarsRaised($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
- 15. $0 $200 $400 2010 2011 20122013 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
- 16. WE PREDICTED THECLOUD 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
- 17. INSTEAD, WE HITTHE 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
- 18. PUBLIC CLOUD HASA 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
- 19. THE CLOUD 100IS VALUED AT $175B+ S o u r c e : P i t c h b o o k
- 20. HOW DO WE PROTECTFOR VOLATILITY ? S A A S T R A N N U A L 2 0 1 9 BVP Nasdaq Emerging Cloud Index
- 21. HOW TO BUILDA RESILIENT COMPANY
- 22. Q: WHEN WASTHE LONGEST BULL MARKET?
- 23. Longest Bull Runin 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 .
- 24. HOW TO BUILDA RESILIENT COMPANY GROWTH (ARR) S A A S T R A N N U A L 2 0 1 9
- 25. $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 1 2 34 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
- 26. YEARS FROM $1MTO $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 .
- 27. BVP GROWTH BENCHMARK SA 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
- 28. HOW TO BUILDA 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
- 29. RETENTION FOR DIFFERENT CUSTOMERSEGMENTS 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
- 30. S A AS 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
- 31. S A AS 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
- 32. S A AS 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
- 33. S A AS T R A N N U A L 2 0 1 9 +
- 34. HOW TO BUILDA 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
- 35. S A AS T R A N N U A L 2 0 1 9
- 36. S A AS T R A N N U A L 2 0 1 9 QUEEN
- 37. MANAGE YOUR RUNWAY Buffer for contingency plan 18– 24 months runway Hiring is a big lever
- 38. THINK ONE FINANCINGAHEAD 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
- 39. HOW TO BUILDA 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”)
- 40. S A AS T R A N N U A L 2 0 1 9 DEFINING EFFICIENCY Net New ARR Net Burn = BVP Efficiency Score (<$30M ARR)
- 41. S A AS T R A N N U A L 2 0 1 9 BVP Nasdaq Emerging Cloud Index EFFICIENT BUSINESSES ARE REWARDED IN ALL MARKETS
- 42. S A AS 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
- 43. S A AS 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)
- 44. S A AS 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
- 45. S A AS 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 +++ =
- 46. S A AS 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 +++ =
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- 49. #1 ROBOTS TOTHE 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
- 50. #2 PRODUCT HASPURSE STRINGS $PRODUCT SALES SERVICES SUPPORT MARKETING S A A S T R A N N U A L 2 0 1 9
- 51. #3 OPENSOURCE MAKESMONEY BiggestIPOEver DeepBenchofStrong Privates LargestM&As S A A S T R A N N U A L 2 0 1 9
- 52. #4 DEEPER VERTICALIZATIONOF 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
- 53. #5 LOW CODE/NOCODE Developer BusinessAppsEasy Automation
- 54. BESSEMER’S 5 PREDICTIONS FOR 2019 1Robots to the rescue Product has purse strings2 Opensource makes money3 Deeper verticalization of mobile4 Low code/no code5
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