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State of Cloud 2016 - Final

This document provides an overview and analysis of the cloud computing industry from 2016. Some of the key points covered include: - Public cloud spending reached $70 billion in 2015, growing at 19.4% annually but still only accounting for 5% of total IT spend. Several large M&A deals occurred as legacy vendors looked to compete in cloud. - Public cloud company valuations outperformed traditional indexes like Nasdaq by 2x from 2011-2016 but volatility has also increased. Revenue multiples have declined from peak levels but remain at a premium to legacy software companies. - Only 3 cloud IPOs occurred in the last 12 months as public valuations declined, but the IPO market is poised to

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State of the Cloud Report 2016Byron Deeter & Kristina Shen www.bvp.com/cloud
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3 DENIAL "We already invested very heavily into our infrastructure. We are not behind on that. We've been doing it all along. We don't need to do anything unusual.” Bill McDermott CEO, SAP
4 "Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?” Larry Ellison Chairman, Oracle ANGER
5 BARGAINING “This deal is all about bringing together the professional cloud and professional network.” Satya Nadella CEO, Microsoft on the LinkedIn Acquisition
6 DEPRESSION “Two years ago, we laid out our strategic plan to transform IBM…As part of this, we divested commoditizing businesses that provided diminishing value to our clients and contributed revenue but little or no profit.” Virginia M. Rometty CEO, IBM
7 24% OF THE TOTAL CLOUD MARKET CAP GOT ACQUIRED IN THE LAST 12 MONTHS ACCEPTANCE
AWS – BY THE NUMBERS 70% >$12Billion $2.5 billion YoY Growth ARR Run Rate Operating Income Run Rate Source: Public SEC filings
Worldwide spending on public cloud services was $70B worldwide in 2015, growing at a 19.4% CAGR, but still only 5% of total IT spend.1 (1) Source: Forbes Cloud Roundup 2016 http://www.forbes.com/sites/louiscolumbus/2016/03/13/roundup-of-cloud-computing-forecasts-and-market-estimates-2016/#21863f1e74b0
CLOUD MARKETS OUTPERFORMING NASDAQ BY 2X 10 0% 50% 100% 150% 200% 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 BVP Cloud Index Nasdaq Index S&P Index Dow Jones BVP Cloud Index 42 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 08/24/2016 Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ.
WITH ALPHA COMES VOLATILITY 11 BVP Cloud Index 42 Publicly Traded Cloud Companies Indexed as of Dec. 2015 | @ 08/24/2016 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% 12/31/15 1/7/16 1/14/16 1/21/16 1/28/16 2/4/16 2/11/16 2/18/16 2/25/16 3/3/16 3/10/16 3/17/16 3/24/16 3/31/16 4/7/16 4/14/16 4/21/16 4/28/16 5/5/16 5/12/16 5/19/16 5/26/16 6/2/16 6/9/16 6/16/16 6/23/16 6/30/16 7/7/16 7/14/16 7/21/16 7/28/16 8/4/16 8/11/16 8/18/16 8/25/16 BVP Cloud Index Nasdaq Index S&P Index Dow Jones Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ. Cut in ½ in 1 mo Full rebound in 6 mos
BUT REVENUE MULTIPLES ARE BACK TO “NORMAL” LEVELS 12 NTM Multiples Over Time 4.9x 3.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 BVP Cloud Index Legacy Software Peak - Jan 2014 9.5x Lowest – Feb 2016 3.1x High M&A Activity Begins Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ.
PRIVATE CLOUD MULTIPLES ARE TRADING AT A PREMIUM TO PUBLIC CLOUD MULTIPLES… BUT THEY ARE CONVERGING 13 NTM Multiples Over Time The public / private gap converging Average 10-17x 4.9x 3.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 11.2x as of today on average Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ. Notes: In the last 6 months, the average ARR multiple paid was 11.2x; BVP Cloud Index multiple and Legacy software multiples are both NTM GAAP revenue. Private Cloud Multiples
ONLY 3 CLOUD IPOs IN THE LAST 12 MONTHSONLY 3 CLOUD IPOs IN THE LAST 12 MONTHS Early (Seed/Series A) Mid (Series B/Series C and/or < $30mm Raise) Late (Series D + and/or > $30mm Raise) Market Cap (At the end of the 1st day) $2.6Bn TWLO 06/16 $5.7Bn TEAM 12/15 $467M INST 11/15 $455M APPF 06/15 $241M XTLY 06/15 $452M MB 06/15 $1.9Bn SHOP 05/15 $2.7Bn BOX 01/15 2016 IPO2015 IPOs e. Ventures Investment Group of Santa Barbara Note: Includes investors with >5% ownership post IPO according to SEC filings and/or leaders of a financing round according to Crunchbase. Includes secondary rounds as independent rounds. If no lead called out on Crunchbase, all >5% shareholders post IPO are called out. Market capitalization calculations include shares outstanding, restricted stock, and use treasury stock methodology on options.
ONLY 3 CLOUD IPOs IN THE LAST 12 MONTHS Early (Seed/Series A) Mid (Series B/Series C and/or < $30mm Raise) Late (Series D + and/or > $30mm Raise) Market Cap (At the end of the 1st day) $2.6Bn TWLO 06/16 $5.7Bn TEAM 12/15 $467M INST 11/15 $455M APPF 06/15 $241M XTLY 06/15 $452M MB 06/15 $1.9Bn SHOP 05/15 $2.7Bn BOX 01/15 2016 IPO2015 IPOs e. Ventures Investment Group of Santa Barbara Note: Includes investors with >5% ownership post IPO according to SEC filings and/or leaders of a financing round according to Crunchbase. Includes secondary rounds as independent rounds. If no lead called out on Crunchbase, all >5% shareholders post IPO are called out. Market capitalization calculations include shares outstanding, restricted stock, and use treasury stock methodology on options. BVP IS A PARTNER TO 5 OF 8 CLOUD IPOs 2015 -2016
CHEAP PUBLIC CLOUD MULTIPLES RESULTED IN $50.4B OF PUBLIC M&A IN JUST 12 MONTHS 16 Company Acquirer Valuation of Acquisition Valuation Multiple at Time of Announcement $1.6B 7.1x $2.4B 7.0x $26.2B 8.1x $1.8B 7.5x $9.3B 10.3x $2.8B 10.5x $532mm 3.2x $663mm 6.5x $4B 4.7x $1.1B 2.6x TOTAL $50.4B AVG: 6.5x
SUMMARY OF LAST 12 MONTHS 17 Public cloud multiples remain cheap M&A will continue because legacy vendors have to react Organic growth of cloud businesses leads to rise of cloud index Cloud IPO market is poised to reopen 1 2 3 4
KEY TOPICS FOR TODAY 18 • State of the Cloud Industry in the last 12 months • Benchmarking and Best Practices • Predictions
5 C’S OF CLOUD FINANCE Representative Cloud Business ($15mm ARR) CARR % Fwd Growth 1 Good Better Best 50-100% 50% 100%+ CAC PAYBACK (Mos) 2 12 - 24 24 <12 CHURN (Monthly) 3 <1% 1-3% Net negative CLTV / CAC 4 3-5x 3x 5x+ CASH FLOW (New ARR/Mo Burn) 5 1x <1x >1x www.bvp.com/cloud 19
[make left turn or right turn, high growth or high profitability] HIGH GROWTH, PATH TO PROFITABILITY HIGH PROFITABILITY, MODEST GROWTH
GROWTH REMAINS AN IMPORTANT METRIC… 0% 20% 40% 60% 80% 100% 120% 140% 160% T-4 T-2 T+0 T+2 T+4 T+6 T+8 T+10 T+12 Pre IPO Post IPO 1 Yr IPO 1 Yr 2 Yrs 3 Yrs Top Quartile 91% 61% 42% 36% 33% Median 72% 47% 35% 34% 24% Bottom Quartile 42% 34% 26% 28% 22% Source: SEC filings. BVP Cloud Index public companies. T = quarters 21 @ $10mm ARR @ $100mm ARR @ $300mm ARR % YoY Growth 300% 100% 30% (Starting From Four Quarters Prior to IPO) Public Cloud Company YoY Growth Best-In-Class Growth
…BUT IS NO LONGER THE STRONGEST METRIC 22 2U Appfolio Athenahealth Atlassian Bazaarvoice Benefitfocus Box BroadSoft Castlight Health Cornerstone OnDemand Cvent Fleetmatics Group HubSpot Instructure IntraLinks Jive Software LifeLock LinkedIn LivePerson LogMeIn Marin Software Medidata Solutions Mindbody MobileIron New Relic NetSuite Proofpoint Qualys RealPage RingCentral Salesforce ServiceNow Shopify SPS Commerce The Ultimate Software Group Veeva Wix Workday Xactly Xero Zendesk 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x -10% 0% 10% 20% 30% 40% 50% 2017 Revenue Multiple ’16-’17 Revenue Growth Source: 41 companies in BVP Cloud Index. CapIQ Note: Exclude Twilio as an outlier. Correlation (R2)= 39% 69% 3 years ago Revenue Growth vs Revenue Multiple
DEFINING THE EFFICIENCY SCORE 23 Rule of 40 = % Annual Revenue Growth + % Profit Margins
DEFINING THE EFFICIENCY SCORE 24 Rule of 40 = % Annual Revenue Growth + % Profit Margins Efficiency Score = % Annual CARR Growth + % FCF Margin
INVESTORS ARE NOW FOCUSED ON EFFICIENT GROWTH Efficiency Score vs Revenue Multiple 25 2U Appfolio Athenahealth Atlassian Bazaarvoice Benefitfocus Instructure BroadSoft Castlight Health Cornerstone OnDemand Cvent Fleetmatics Group HubSpot Box IntraLinks Jive Software LifeLock LinkedIn LivePerson LogMeIn Marin Software Medidata Solutions Mindbody MobileIron New Relic NetSuite Proofpoint Qualys RealPage RingCentral Salesforce ServiceNow Shopify SPS Commerce The Ultimate Software Group Veeva Wix Workday Xactly Xero Zendesk 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x -10% 0% 10% 20% 30% 40% 50% 60% 2017 Revenue Multiple ’16-’17 Revenue Growth + ’17 FCF Source: 41 companies in BVP Cloud Index. CapIQ Note: Exclude Twilio as an outlier. Correlation (R2)= 67% +10% efficient growth results in +1.4x Rev Mult
EXAMPLE 1: SHOPIFY HIGH GROWTH + BREAKEVEN FCF 26 Efficiency Score 2013 Efficiency Score 108% 89% 95% 79% 44% 36% -40% -20% 0% 20% 40% 60% 80% 100% 120% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y Efficiency FCF Margin Revenue Growth 112% -4% 108% -20% 80% 180% % Revenue Growth % FCF Margin Power $50M ($2)M 2013 Revenue 2013 FCF Source: CapiQ Note: Efficiency score defined as % annual CARR Growth + % FCF Margin
EXAMPLE 2: VEEVA MODEST GROWTH + HIGH FCF 27 Efficiency Score 2013 Efficiency Score 62% 19% 81% 0% 50% 100% % Revenue Growth % FCF Margin Power $210M $39M 2013 Revenue 2013 FCF 117% 134% 81% 62% 45% 50% 0% 20% 40% 60% 80% 100% 120% 140% 160% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y Efficiency FCF Margin Revenue Growth Source: CapiQ Note: Efficiency score defined as % annual CARR Growth + % FCF Margin
DIFFERENT STAGES REQUIRE EFFICIENCY SCORES 28 100% 73% 56% 53% 45% 38% 35% 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 Time % Annual CARR Growth + % FCF Margin 73% 56% 53% 45% 38% 35% 32% Source: 42 companies in the BVP Cloud Index, CapiQ Note: Average efficiency score of the 42 public cloud companies. Efficiency score defined as % annual CARR growth + % FCF margin. Efficiency Score of Public Cloud Companies @ IPO
THE BVP EFFICIENCY RULE – 70 – 50 – 30 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO - 3Y IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y IPO + 3Y % CARR Growth + % FCF Margin Efficiency Score = % Annual CARR Growth + % FCF Margin 70% 50% 30% EXPANSION ($30-60M ARR) PRE IPO ($60-100M ARR) PUBLIC ($100M+ ARR)
THE BVP EFFICIENCY RULE – 70 – 50 – 30 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y IPO + 3Y % CARR Growth + % FCF Margin 70% 50% 30% EXPANSION ($30-60M ARR) PRE IPO ($60-100M ARR) PUBLIC ($100M+ ARR) ? Efficiency Score = % Annual CARR Growth + % FCF Margin
THE BVP EFFICIENCY RULE – 70 – 50 – 30 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y IPO + 3Y % CARR Growth + % FCF Margin 70% 50% 30% EXPANSION ($30-60M ARR) PRE IPO ($60-100M ARR) PUBLIC ($100M+ ARR) MID ($10-30M ARR) Net New ARR Net Cash Burn > 1 EARLY (<$10M ARR) CLTV CAC > 3 Efficiency Score = % Annual CARR Growth + % FCF Margin
KEY TOPICS FOR TODAY 32 • State of the Cloud Industry in the last 12 months • Benchmarking and Best Practices • Predictions
2015 PREDICTION #1: INDUSTRY CLOUD ON THE RISE 33
2015 PREDICTION #1: INDUSTRY CLOUD ON THE RISE 34
$9.2B OF INDUSTRY CLOUD ACQUISITIONS & 2 IPOs $4B $2.4B $663M $1.6B $532M $661M (IPO) 35 $616M (IPO) Notable Financings
2015 PREDICTION #2: CYBERSECURITY, A HOT MARKET 36
2015 PREDICTION #2: CYBERSECURITY, A HOT MARKET 37
$2.1 trillion PREDICTION #2 - CYBERSECURITY, A HOT MARKET Cost of data breaches globally, 4x more than 20151 Source: (1) Juniper Research, http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion (2) Gartner Inc. http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
14$2.1 trillion PREDICTION #2 - CYBERSECURITY, A HOT MARKET Cost of data breaches globally, 4x more than 20151 Of the Cloud 100 were Cybersecurity Companies, the largest share Source: (1) Juniper Research, http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion (2) Gartner Inc. http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
14$2.1 trillion Cost of data breaches globally, 4x more than 20151 $170 Billion Of the Cloud 100 were Cybersecurity Companies, the largest share Worldwide Cybersecurity Market by 2020, up from $75.4 B in 20152 PREDICTION #2 - CYBERSECURITY, A HOT MARKET Source: (1) Juniper Research, http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion (2) Gartner Inc. http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
43 PREDICTION #3: THE DEVELOPER IS MORE IMPORTANT
2015 PREDICTION #3: DEVELOPERS ARE THE NEW KID ON THE BLOCK, AND HERE TO STAY 44
NOW THE COOL KID…
APIS TO ACCELERATE YOUR BUSINESS Mapping Payments Communication (Messaging/Voice) Email SSO Customer Engagement Storage 46
2015 PREDICTION #4: MORE M&AAHEAD
2015 PREDICTION #4: MORE M&AAHEAD
THE LEGACY PLAYERS ARE…. 47
CORNERED ANIMALS… 50 Classic Innovator’s Dilemma allowed cloud entrants to thrive Too late to build Facing an extinction level event Can’t afford to buy all of what’s needed
‘NUFF SAID $50.4B 50
‘NUFF SAID $50.4B
2015 PREDICTION #5: MOBILE IS A GAME CHANGER FOR THE ENTERPRISE 53
2015 PREDICTION #5: MOBILE IS A GAME CHANGER FOR THE ENTERPRISE 54
PREDICTION #5: MOBILE IS A GAME CHANGER FOR THE ENTERPRISE 85% Americans between 18-29 >50% Internet usage on mobile vs desktop 80% Workforce are non-desk workers ~EVERYONE IN ENTERPRISE B2B NOW HAS A SMARTPHONE INTERNET USAGE TIPPED TO MOBILE REACHES AN UNTOUCHED WORKFORCE Source: Pew Research Center, April, 2015, “The Smartphone Difference”. Source: eMarketer 9/14 (2008-2010), eMarketer 4/15 (2011-2015). Note: Other connected devices include OTT and game consoles. Mobile includes smartphone and tablet. Usage includes both home and work. Ages 18+; time spent with each medium includes all time spent with that medium, regardless of multitasking. KPCB Internet trends, 2015 Global Mobile Penetration 1995 - 2014 GLOBAL PENETRATION 1 –> 73% 55
EARLY ENTERPRISE MOBILE USE CASES Healthcare Education Safety/Compliance Construction Field Services Retail Sales Events Agriculture SMBs VERTICAL Paper Replacement (Forms/Invoicing) Collaboration HORIZONTAL www.bvp.com/cloud 56
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MESSAGING IS THE KILLER MOBILE EXPERIENCE • 2.7MM DAUs • 320 million minutes of active usage per weekday • 800K paid seats weekly active user growth rate4 Source: (1) Business Insider. (2) Velocify., (3) eWeek. (4) TechCrunch, as of April 2016. 59 • The average Millennial (18-24) exchanges an average of 67 text messages per day1 • Text messages have a 98% open rate, while email has only a 20% open rate2 • Over 80% of people use text messaging for business, and 15% said that more than half their messages are for business purposes3
2016 PREDICTION: SAAS 2.0 BEGINS TO DISRUPT SAAS 1.0 ?
PREDICTION – SAAS 2.0 BEGINS TO DISRUPT SAAS 1.0 HCM is the First Market Phase 0 Phase 1 Phase 2 Phase 1.5 61
2016 PREDICTION: USE OF DEEP LEARNING & AI IN ENTERPRISE ?
CONSUMER IS AHEAD, BUT ENTERPRISE WILL FOLLOW Photo Recognition Voice Recognition Text Recognition Text RecognitionVoice RecognitionPhoto Recognition
2016 PREDICTIONS, FROM “CONVENTIONAL WISDOM” TO EMERGING EMERGING CONVENTIONAL WISDOM 7 6 5 4 3 2 1 Deep Learning/ AI Enterprise Mobile SaaS 2.0 Cybersecurity Private M&A Developers Reign Industry Cloud
State of the Cloud Report 2016Byron Deeter & Kristina Shen www.bvp.com/cloud

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State of Cloud 2016 - Final

  • 1.
    State of theCloud Report 2016Byron Deeter & Kristina Shen www.bvp.com/cloud
  • 2.
  • 3.
  • 4.
  • 5.
  • 6.
  • 7.
    7 24% OF THETOTAL CLOUD MARKET CAP GOT ACQUIRED IN THE LAST 12 MONTHS ACCEPTANCE
  • 8.
    AWS – BYTHE NUMBERS 70% >$12Billion $2.5 billion YoY Growth ARR Run Rate Operating Income Run Rate Source: Public SEC filings
  • 9.
    Worldwide spending onpublic cloud services was $70B worldwide in 2015, growing at a 19.4% CAGR, but still only 5% of total IT spend.1 (1) Source: Forbes Cloud Roundup 2016 http://www.forbes.com/sites/louiscolumbus/2016/03/13/roundup-of-cloud-computing-forecasts-and-market-estimates-2016/#21863f1e74b0
  • 10.
    CLOUD MARKETS OUTPERFORMINGNASDAQ BY 2X 10 0% 50% 100% 150% 200% 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 BVP Cloud Index Nasdaq Index S&P Index Dow Jones BVP Cloud Index 42 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 08/24/2016 Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ.
  • 11.
    WITH ALPHA COMESVOLATILITY 11 BVP Cloud Index 42 Publicly Traded Cloud Companies Indexed as of Dec. 2015 | @ 08/24/2016 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% 12/31/15 1/7/16 1/14/16 1/21/16 1/28/16 2/4/16 2/11/16 2/18/16 2/25/16 3/3/16 3/10/16 3/17/16 3/24/16 3/31/16 4/7/16 4/14/16 4/21/16 4/28/16 5/5/16 5/12/16 5/19/16 5/26/16 6/2/16 6/9/16 6/16/16 6/23/16 6/30/16 7/7/16 7/14/16 7/21/16 7/28/16 8/4/16 8/11/16 8/18/16 8/25/16 BVP Cloud Index Nasdaq Index S&P Index Dow Jones Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ. Cut in ½ in 1 mo Full rebound in 6 mos
  • 12.
    BUT REVENUE MULTIPLESARE BACK TO “NORMAL” LEVELS 12 NTM Multiples Over Time 4.9x 3.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 BVP Cloud Index Legacy Software Peak - Jan 2014 9.5x Lowest – Feb 2016 3.1x High M&A Activity Begins Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ.
  • 13.
    PRIVATE CLOUD MULTIPLESARE TRADING AT A PREMIUM TO PUBLIC CLOUD MULTIPLES… BUT THEY ARE CONVERGING 13 NTM Multiples Over Time The public / private gap converging Average 10-17x 4.9x 3.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16 11.2x as of today on average Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ. Notes: In the last 6 months, the average ARR multiple paid was 11.2x; BVP Cloud Index multiple and Legacy software multiples are both NTM GAAP revenue. Private Cloud Multiples
  • 14.
    ONLY 3 CLOUDIPOs IN THE LAST 12 MONTHSONLY 3 CLOUD IPOs IN THE LAST 12 MONTHS Early (Seed/Series A) Mid (Series B/Series C and/or < $30mm Raise) Late (Series D + and/or > $30mm Raise) Market Cap (At the end of the 1st day) $2.6Bn TWLO 06/16 $5.7Bn TEAM 12/15 $467M INST 11/15 $455M APPF 06/15 $241M XTLY 06/15 $452M MB 06/15 $1.9Bn SHOP 05/15 $2.7Bn BOX 01/15 2016 IPO2015 IPOs e. Ventures Investment Group of Santa Barbara Note: Includes investors with >5% ownership post IPO according to SEC filings and/or leaders of a financing round according to Crunchbase. Includes secondary rounds as independent rounds. If no lead called out on Crunchbase, all >5% shareholders post IPO are called out. Market capitalization calculations include shares outstanding, restricted stock, and use treasury stock methodology on options.
  • 15.
    ONLY 3 CLOUDIPOs IN THE LAST 12 MONTHS Early (Seed/Series A) Mid (Series B/Series C and/or < $30mm Raise) Late (Series D + and/or > $30mm Raise) Market Cap (At the end of the 1st day) $2.6Bn TWLO 06/16 $5.7Bn TEAM 12/15 $467M INST 11/15 $455M APPF 06/15 $241M XTLY 06/15 $452M MB 06/15 $1.9Bn SHOP 05/15 $2.7Bn BOX 01/15 2016 IPO2015 IPOs e. Ventures Investment Group of Santa Barbara Note: Includes investors with >5% ownership post IPO according to SEC filings and/or leaders of a financing round according to Crunchbase. Includes secondary rounds as independent rounds. If no lead called out on Crunchbase, all >5% shareholders post IPO are called out. Market capitalization calculations include shares outstanding, restricted stock, and use treasury stock methodology on options. BVP IS A PARTNER TO 5 OF 8 CLOUD IPOs 2015 -2016
  • 16.
    CHEAP PUBLIC CLOUDMULTIPLES RESULTED IN $50.4B OF PUBLIC M&A IN JUST 12 MONTHS 16 Company Acquirer Valuation of Acquisition Valuation Multiple at Time of Announcement $1.6B 7.1x $2.4B 7.0x $26.2B 8.1x $1.8B 7.5x $9.3B 10.3x $2.8B 10.5x $532mm 3.2x $663mm 6.5x $4B 4.7x $1.1B 2.6x TOTAL $50.4B AVG: 6.5x
  • 17.
    SUMMARY OF LAST12 MONTHS 17 Public cloud multiples remain cheap M&A will continue because legacy vendors have to react Organic growth of cloud businesses leads to rise of cloud index Cloud IPO market is poised to reopen 1 2 3 4
  • 18.
    KEY TOPICS FORTODAY 18 • State of the Cloud Industry in the last 12 months • Benchmarking and Best Practices • Predictions
  • 19.
    5 C’S OFCLOUD FINANCE Representative Cloud Business ($15mm ARR) CARR % Fwd Growth 1 Good Better Best 50-100% 50% 100%+ CAC PAYBACK (Mos) 2 12 - 24 24 <12 CHURN (Monthly) 3 <1% 1-3% Net negative CLTV / CAC 4 3-5x 3x 5x+ CASH FLOW (New ARR/Mo Burn) 5 1x <1x >1x www.bvp.com/cloud 19
  • 20.
    [make left turnor right turn, high growth or high profitability] HIGH GROWTH, PATH TO PROFITABILITY HIGH PROFITABILITY, MODEST GROWTH
  • 21.
    GROWTH REMAINS ANIMPORTANT METRIC… 0% 20% 40% 60% 80% 100% 120% 140% 160% T-4 T-2 T+0 T+2 T+4 T+6 T+8 T+10 T+12 Pre IPO Post IPO 1 Yr IPO 1 Yr 2 Yrs 3 Yrs Top Quartile 91% 61% 42% 36% 33% Median 72% 47% 35% 34% 24% Bottom Quartile 42% 34% 26% 28% 22% Source: SEC filings. BVP Cloud Index public companies. T = quarters 21 @ $10mm ARR @ $100mm ARR @ $300mm ARR % YoY Growth 300% 100% 30% (Starting From Four Quarters Prior to IPO) Public Cloud Company YoY Growth Best-In-Class Growth
  • 22.
    …BUT IS NOLONGER THE STRONGEST METRIC 22 2U Appfolio Athenahealth Atlassian Bazaarvoice Benefitfocus Box BroadSoft Castlight Health Cornerstone OnDemand Cvent Fleetmatics Group HubSpot Instructure IntraLinks Jive Software LifeLock LinkedIn LivePerson LogMeIn Marin Software Medidata Solutions Mindbody MobileIron New Relic NetSuite Proofpoint Qualys RealPage RingCentral Salesforce ServiceNow Shopify SPS Commerce The Ultimate Software Group Veeva Wix Workday Xactly Xero Zendesk 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x -10% 0% 10% 20% 30% 40% 50% 2017 Revenue Multiple ’16-’17 Revenue Growth Source: 41 companies in BVP Cloud Index. CapIQ Note: Exclude Twilio as an outlier. Correlation (R2)= 39% 69% 3 years ago Revenue Growth vs Revenue Multiple
  • 23.
    DEFINING THE EFFICIENCYSCORE 23 Rule of 40 = % Annual Revenue Growth + % Profit Margins
  • 24.
    DEFINING THE EFFICIENCYSCORE 24 Rule of 40 = % Annual Revenue Growth + % Profit Margins Efficiency Score = % Annual CARR Growth + % FCF Margin
  • 25.
    INVESTORS ARE NOWFOCUSED ON EFFICIENT GROWTH Efficiency Score vs Revenue Multiple 25 2U Appfolio Athenahealth Atlassian Bazaarvoice Benefitfocus Instructure BroadSoft Castlight Health Cornerstone OnDemand Cvent Fleetmatics Group HubSpot Box IntraLinks Jive Software LifeLock LinkedIn LivePerson LogMeIn Marin Software Medidata Solutions Mindbody MobileIron New Relic NetSuite Proofpoint Qualys RealPage RingCentral Salesforce ServiceNow Shopify SPS Commerce The Ultimate Software Group Veeva Wix Workday Xactly Xero Zendesk 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x -10% 0% 10% 20% 30% 40% 50% 60% 2017 Revenue Multiple ’16-’17 Revenue Growth + ’17 FCF Source: 41 companies in BVP Cloud Index. CapIQ Note: Exclude Twilio as an outlier. Correlation (R2)= 67% +10% efficient growth results in +1.4x Rev Mult
  • 26.
    EXAMPLE 1: SHOPIFY HIGHGROWTH + BREAKEVEN FCF 26 Efficiency Score 2013 Efficiency Score 108% 89% 95% 79% 44% 36% -40% -20% 0% 20% 40% 60% 80% 100% 120% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y Efficiency FCF Margin Revenue Growth 112% -4% 108% -20% 80% 180% % Revenue Growth % FCF Margin Power $50M ($2)M 2013 Revenue 2013 FCF Source: CapiQ Note: Efficiency score defined as % annual CARR Growth + % FCF Margin
  • 27.
    EXAMPLE 2: VEEVA MODESTGROWTH + HIGH FCF 27 Efficiency Score 2013 Efficiency Score 62% 19% 81% 0% 50% 100% % Revenue Growth % FCF Margin Power $210M $39M 2013 Revenue 2013 FCF 117% 134% 81% 62% 45% 50% 0% 20% 40% 60% 80% 100% 120% 140% 160% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y Efficiency FCF Margin Revenue Growth Source: CapiQ Note: Efficiency score defined as % annual CARR Growth + % FCF Margin
  • 28.
    DIFFERENT STAGES REQUIREEFFICIENCY SCORES 28 100% 73% 56% 53% 45% 38% 35% 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 Time % Annual CARR Growth + % FCF Margin 73% 56% 53% 45% 38% 35% 32% Source: 42 companies in the BVP Cloud Index, CapiQ Note: Average efficiency score of the 42 public cloud companies. Efficiency score defined as % annual CARR growth + % FCF margin. Efficiency Score of Public Cloud Companies @ IPO
  • 29.
    THE BVP EFFICIENCYRULE – 70 – 50 – 30 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO - 3Y IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y IPO + 3Y % CARR Growth + % FCF Margin Efficiency Score = % Annual CARR Growth + % FCF Margin 70% 50% 30% EXPANSION ($30-60M ARR) PRE IPO ($60-100M ARR) PUBLIC ($100M+ ARR)
  • 30.
    THE BVP EFFICIENCYRULE – 70 – 50 – 30 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y IPO + 3Y % CARR Growth + % FCF Margin 70% 50% 30% EXPANSION ($30-60M ARR) PRE IPO ($60-100M ARR) PUBLIC ($100M+ ARR) ? Efficiency Score = % Annual CARR Growth + % FCF Margin
  • 31.
    THE BVP EFFICIENCYRULE – 70 – 50 – 30 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO - 3Y IPO - 2Y IPO - 1Y IPO IPO + 1Y IPO + 2Y IPO + 3Y % CARR Growth + % FCF Margin 70% 50% 30% EXPANSION ($30-60M ARR) PRE IPO ($60-100M ARR) PUBLIC ($100M+ ARR) MID ($10-30M ARR) Net New ARR Net Cash Burn > 1 EARLY (<$10M ARR) CLTV CAC > 3 Efficiency Score = % Annual CARR Growth + % FCF Margin
  • 32.
    KEY TOPICS FORTODAY 32 • State of the Cloud Industry in the last 12 months • Benchmarking and Best Practices • Predictions
  • 33.
    2015 PREDICTION #1: INDUSTRYCLOUD ON THE RISE 33
  • 34.
    2015 PREDICTION #1: INDUSTRYCLOUD ON THE RISE 34
  • 35.
    $9.2B OF INDUSTRYCLOUD ACQUISITIONS & 2 IPOs $4B $2.4B $663M $1.6B $532M $661M (IPO) 35 $616M (IPO) Notable Financings
  • 36.
  • 37.
  • 40.
    $2.1 trillion PREDICTION #2 -CYBERSECURITY, A HOT MARKET Cost of data breaches globally, 4x more than 20151 Source: (1) Juniper Research, http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion (2) Gartner Inc. http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
  • 41.
    14$2.1 trillion PREDICTION #2 -CYBERSECURITY, A HOT MARKET Cost of data breaches globally, 4x more than 20151 Of the Cloud 100 were Cybersecurity Companies, the largest share Source: (1) Juniper Research, http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion (2) Gartner Inc. http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
  • 42.
    14$2.1 trillion Cost of data breaches globally, 4x more than 20151 $170 Billion Of the Cloud 100 were Cybersecurity Companies, the largest share Worldwide Cybersecurity Market by 2020, up from $75.4 B in 20152 PREDICTION #2 -CYBERSECURITY, A HOT MARKET Source: (1) Juniper Research, http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion (2) Gartner Inc. http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
  • 43.
    43 PREDICTION #3: THEDEVELOPER IS MORE IMPORTANT
  • 44.
    2015 PREDICTION #3: DEVELOPERSARE THE NEW KID ON THE BLOCK, AND HERE TO STAY 44
  • 45.
  • 46.
    APIS TO ACCELERATEYOUR BUSINESS Mapping Payments Communication (Messaging/Voice) Email SSO Customer Engagement Storage 46
  • 47.
  • 48.
  • 49.
  • 50.
  • 51.
  • 52.
  • 53.
    2015 PREDICTION #5: MOBILEIS A GAME CHANGER FOR THE ENTERPRISE 53
  • 54.
    2015 PREDICTION #5: MOBILEIS A GAME CHANGER FOR THE ENTERPRISE 54
  • 55.
    PREDICTION #5: MOBILEIS A GAME CHANGER FOR THE ENTERPRISE 85% Americans between 18-29 >50% Internet usage on mobile vs desktop 80% Workforce are non-desk workers ~EVERYONE IN ENTERPRISE B2B NOW HAS A SMARTPHONE INTERNET USAGE TIPPED TO MOBILE REACHES AN UNTOUCHED WORKFORCE Source: Pew Research Center, April, 2015, “The Smartphone Difference”. Source: eMarketer 9/14 (2008-2010), eMarketer 4/15 (2011-2015). Note: Other connected devices include OTT and game consoles. Mobile includes smartphone and tablet. Usage includes both home and work. Ages 18+; time spent with each medium includes all time spent with that medium, regardless of multitasking. KPCB Internet trends, 2015 Global Mobile Penetration 1995 - 2014 GLOBAL PENETRATION 1 –> 73% 55
  • 56.
    EARLY ENTERPRISE MOBILEUSE CASES Healthcare Education Safety/Compliance Construction Field Services Retail Sales Events Agriculture SMBs VERTICAL Paper Replacement (Forms/Invoicing) Collaboration HORIZONTAL www.bvp.com/cloud 56
  • 57.
  • 58.
  • 59.
    MESSAGING IS THEKILLER MOBILE EXPERIENCE • 2.7MM DAUs • 320 million minutes of active usage per weekday • 800K paid seats weekly active user growth rate4 Source: (1) Business Insider. (2) Velocify., (3) eWeek. (4) TechCrunch, as of April 2016. 59 • The average Millennial (18-24) exchanges an average of 67 text messages per day1 • Text messages have a 98% open rate, while email has only a 20% open rate2 • Over 80% of people use text messaging for business, and 15% said that more than half their messages are for business purposes3
  • 60.
    2016 PREDICTION: SAAS 2.0BEGINS TO DISRUPT SAAS 1.0 ?
  • 61.
    PREDICTION – SAAS2.0 BEGINS TO DISRUPT SAAS 1.0 HCM is the First Market Phase 0 Phase 1 Phase 2 Phase 1.5 61
  • 62.
    2016 PREDICTION: USE OFDEEP LEARNING & AI IN ENTERPRISE ?
  • 65.
    CONSUMER IS AHEAD,BUT ENTERPRISE WILL FOLLOW Photo Recognition Voice Recognition Text Recognition Text RecognitionVoice RecognitionPhoto Recognition
  • 66.
    2016 PREDICTIONS, FROM“CONVENTIONAL WISDOM” TO EMERGING EMERGING CONVENTIONAL WISDOM 7 6 5 4 3 2 1 Deep Learning/ AI Enterprise Mobile SaaS 2.0 Cybersecurity Private M&A Developers Reign Industry Cloud
  • 69.
    State of theCloud Report 2016Byron Deeter & Kristina Shen www.bvp.com/cloud