Enterprise software valuations showed a decline in Q1 but are stabilizing at a new normal, with a slowdown in VC deal volume yet sustained interest for strong companies. The startup climate for 2016 encourages long-term planning and a focus on cash positions, while strategic M&A activity is anticipated to rise. Key market areas include infrastructure, security, and evolving applications, with a focus on data, IoT, and machine intelligence driving innovation.

1. THE STATE OF
ENTERPRISE SOFTWARE
J E R RY C H E N

2. Valuations took a hit in Q1 but are coming back.
BessemerCloudIndex
Source: Bessemer
2016

3. We are seeing a“new normal”in valuations.
Source: Morgan Stanley, Capital IQ, Thomson
Avg. Aggregate Value /
Next 12 Month Revenue
15.5x
2013-2014
7.4x
2/12/2016

4. Recent Enterprise IPOs: 1 Year Performance
Source: Google Finance

5. 2015 VC investments reached dotcom levels
Source: Greylock, PwC/NVCA Data: Thomson Reuters

6. U.S. Early Stage VC: Q4 2015 - Q1 2016
Decrease
in # Deals
Increase
in Round
Sizes
Source: Pitchbook

7. U.S. Late Stage VC: Q1 2016
Decrease
in # Deals y/y
Smaller
Deal Sizes y/y
Source: Pitchbook

8. Expect M&A to return to historic levels.
Source: Morgan Stanley, Capital IQ, Dealogic

9. Market Summary
Public Markets
Valuations are down. We’re stabilizing at a new normal.
VC
Deal volume is decreasing, but still an appetite for great companies.
M&A
Expect strategic M&A to pick up over the next four quarters.

10. Startup Climate for 2016
Focus on cash
positions
Build for the
long haul
Pick a wave bigger
than you
You.

11. MARKET SPOTLIGHT
Areas of Interest

12. INFRASTRUCTURE
“Caught between OSS and a Cloud Place”

13. How do you get out between
OSS and a Cloud Place?

14. Infrastructure
Amazon is the biggest threat to
infrastructure companies.
Azure and Google will make progress in
2016 with enterprise buyers.
Incumbent and private cloud vendors will
act irrationally.
You need a large footprint and direct
connection to developers (DDI).

15. SECURITY
“Separating signal from the noise”

16. Security
Thousands of companies all sound the same.
(And many are the same.)
Customers don’t want to buy snake oil. Your job
is to help them be smart buyers.
Security is an evergreen market. There will
always be bad guys, so build a business model
that“works for you.”

17. APPS
“Not your father’s Oldsmobile”

18. Evolution of Apps
Cloud/SaaS Cloud/MobileClient/Server What’s Next?
?

19. The basic building blocks of apps are changing.
Bots and
conversational UIs
IoT extends reach
of apps everywhere
Big Data/AI
will power apps

20. Cloud-enabled car
recognizes when
you’re in an accident.
Sends data to your
insurance company
and sends quote to
your phone.
Calls Uber to
pick you up.
Not your father’s Oldsmobile.

21. DATA & IoT
“Machine intelligence and other oxymorons”

22. Iron Man Terminator
vs.

23. Data and IoT
Vision, speech, and text are real and ready
for apps today.
Find the data. Accumulate more data and
proprietary data. More data trumps better
math.