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

1. State of the Cloud Report
2016Byron Deeter & Kristina Shen
www.bvp.com/cloud

2. 2

3. 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. 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. 5
BARGAINING
“This deal is all about bringing
together the professional cloud
and professional network.”
Satya Nadella
CEO, Microsoft on the LinkedIn
Acquisition

6. 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. 7
24% OF THE TOTAL CLOUD
MARKET CAP GOT ACQUIRED
IN THE LAST 12 MONTHS
ACCEPTANCE

8. AWS – BY THE NUMBERS
70%
>$12Billion
$2.5 billion
YoY Growth
ARR Run Rate
Operating Income Run Rate
Source: Public SEC filings

9. 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

10. 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.

11. 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

12. 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.

13. 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

14. 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.

15. 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

16. 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

17. 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

18. KEY TOPICS FOR TODAY
18
• State of the Cloud Industry in the last 12 months
• Benchmarking and Best Practices
• Predictions

19. 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

20. [make left turn or right turn, high growth or high profitability]
HIGH GROWTH,
PATH TO
PROFITABILITY
HIGH
PROFITABILITY,
MODEST GROWTH

21. 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

22. …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

23. DEFINING THE EFFICIENCY SCORE
23
Rule of 40
= % Annual Revenue Growth + % Profit Margins

24. DEFINING THE EFFICIENCY SCORE
24
Rule of 40
= % Annual Revenue Growth + % Profit Margins
Efficiency Score
= % Annual CARR Growth + % FCF Margin

25. 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

26. 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

27. 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

28. 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

29. 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)

30. 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

31. 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

32. KEY TOPICS FOR TODAY
32
• State of the Cloud Industry in the last 12 months
• Benchmarking and Best Practices
• Predictions

33. 2015 PREDICTION #1:
INDUSTRY CLOUD ON THE RISE
33

34. 2015 PREDICTION #1:
INDUSTRY CLOUD ON THE RISE
34

35. $9.2B OF INDUSTRY CLOUD ACQUISITIONS & 2 IPOs
$4B
$2.4B
$663M
$1.6B
$532M
$661M
(IPO)
35
$616M
(IPO)
Notable Financings

36. 2015 PREDICTION #2:
CYBERSECURITY, A HOT MARKET
36

37. 2015 PREDICTION #2:
CYBERSECURITY, A HOT MARKET
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: THE DEVELOPER IS MORE IMPORTANT

44. 2015 PREDICTION #3:
DEVELOPERS ARE THE NEW KID ON THE BLOCK, AND HERE TO STAY
44

45. NOW THE COOL KID…

46. APIS TO ACCELERATE YOUR BUSINESS
Mapping
Payments
Communication
(Messaging/Voice)
Email
SSO
Customer
Engagement
Storage
46

47. 2015 PREDICTION #4:
MORE M&AAHEAD

48. 2015 PREDICTION #4:
MORE M&AAHEAD

49. THE LEGACY PLAYERS ARE….
47

50. 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

51. ‘NUFF SAID
$50.4B
50

52. ‘NUFF SAID
$50.4B

53. 2015 PREDICTION #5:
MOBILE IS A GAME CHANGER FOR THE ENTERPRISE
53

54. 2015 PREDICTION #5:
MOBILE IS A GAME CHANGER FOR THE ENTERPRISE
54

55. 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

56. 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

57. 57

58. 58

59. 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

60. 2016 PREDICTION:
SAAS 2.0 BEGINS TO DISRUPT SAAS 1.0
?

61. 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

62. 2016 PREDICTION:
USE OF DEEP 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 the Cloud Report
2016Byron Deeter & Kristina Shen
www.bvp.com/cloud