55
STATE OF THECLOUD REPORT2017Byron Deeter & Kristina Shen
w w w . b v p . c o m / c l o u d
Special Thanks to Anna Khan
2016WOWZAWHAT A YEAR
4Source: Uber
5Source: New York Stock Exchange
6Source: Make A GIF
7Source: Dean DeLisle, Blog Post
Source: 43 companies in BVP Cloud Index as of 02/01/2017. CapIQ
A ROCKY START TO 2016
BVP Cloud Index (1/1/2016 – 2/12/2016)43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 |
@ 02/01/2017
50%
60%
70%
80%
90%
100%
110%
120%
1/1
/201
6
1/3
/201
6
1/5
/201
6
1/7
/201
6
1/9
/201
6
1/1
1/2
016
1/1
3/2
016
1/1
5/2
016
1/1
7/2
016
1/1
9/2
016
1/2
1/2
016
1/2
3/2
016
1/2
5/2
016
1/2
7/2
016
1/2
9/2
016
1/3
1/2
016
2/2
/201
6
2/4
/201
6
2/6
/201
6
2/8
/201
6
2/1
0/2
016
2/1
2/2
016
BVP Index Nasdaq S&P Dow Jones
BVP Cloud Index (2/12/2016-2/3/2017)43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @
02/03/2017
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ
...BUT THE MARKET COMPLETELY REBOUNDED IN 2H 2016
BVP Cloud Index (1/1/2016 – 2/12/2016)43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 |
@ 02/03/2017
50%
60%
70%
80%
90%
100%
110%
120%
1/1
/201
6
1/3
/201
6
1/5
/201
6
1/7
/201
6
1/9
/201
6
1/1
1/2
016
1/1
3/2
016
1/1
5/2
016
1/1
7/2
016
1/1
9/2
016
1/2
1/2
016
1/2
3/2
016
1/2
5/2
016
1/2
7/2
016
1/2
9/2
016
1/3
1/2
016
2/2
/201
6
2/4
/201
6
2/6
/201
6
2/8
/201
6
2/1
0/2
016
2/1
2/2
016
BVP Index Nasdaq S&P Dow Jones
50%
60%
70%
80%
90%
100%
110%
120%
BVP Index Nasdaq S&P Dow Jones
BVP Cloud Index43 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 02/03/2017
JUST A SMALL BUMP IN A CRAZY RIDE UP!
50%
100%
150%
200%
250%
300%
350%
1/1
/201
1
3/1
/201
1
5/1
/201
1
7/1
/201
1
9/1
/201
1
11
/1/2
011
1/1
/201
2
3/1
/201
2
5/1
/201
2
7/1
/201
2
9/1
/201
2
11
/1/2
012
1/1
/201
3
3/1
/201
3
5/1
/201
3
7/1
/201
3
9/1
/201
3
11
/1/2
013
1/1
/201
4
3/1
/201
4
5/1
/201
4
7/1
/201
4
9/1
/201
4
11
/1/2
014
1/1
/201
5
3/1
/201
5
5/1
/201
5
7/1
/201
5
9/1
/201
5
11
/1/2
015
1/1
/201
6
3/1
/201
6
5/1
/201
6
7/1
/201
6
9/1
/201
6
11
/1/2
016
1/1
/201
7
BVP Index Nasdaq S&P Dow Jones
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ
0
5
10
15
20
25
30
35
40
45
50
2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of tech
IPOs on U.S.
Stock exchanges
Source: Bloomberg
*Tech IPOs less than $5MM are not included | *Listings for this year are through Nov 15
FEWEST TECH IPOS SINCE FINANCIAL CRISIS
company 2016-2017
$2.9B
$1.4B
$1.3B
$592M
$492M
company2015
$6.2B
$4.3B
$2.3B
$989M
$826M
$694M
$331M
$6.7B$15.6BTotal
Source: CapIQ
Total
TOTAL CLOUD IPOS IN 2015-2017
company 2016-2017
$2.9B
$1.4B
$1.3B
$592M
$492M
company2015
$6.2B
$4.3B
$2.3B
$989M
$826M
$694M
$331M
$6.7B$15.6BTotal
5 OF 12 CLOUD IPOS ARE BVP-FUNDED
Source: CapIQ
Total
M&A From 2009 to Today
4X MORE M&A 2016 THAN ANY OTHER YEAR
$1,676 $2,279 $5,627
$13,708
$8,889
$14,921 $17,655
$60,713
$3,700
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: CapIQ
PUBLIC CLOUD COMPANIES 2009 – 2017
Source: CapIQ and public fillings.
Note: >$300BN market cap also includes 25 companies that are either public companies that are <$1bn market cap or large private acquisitions >$500m market cap.
Salesforce
Workday
ServiceNow
Netsuite
Concur
Veeva
Atlassian
Ultimate Software
Athenahealth
Shopify
Ariba
Dealertrack
Successfactors
Appdynamics
Tableau
$59.9
$29.0
$21.1
$16.0
$9.3
$8.3
$6.2
$6.2
$5.9
$5.4
$5.2
$4.6
$4.0
$3.9
$3.7
$3.9
Xero
Taleo
LogMeIn
Marketo
Rightnow
New Relic
RingCentral
Omniture
Blackboard
Digital Insights
Cvent
2U
Responsys
Qualys
Blackline
Kenexa
$1.9
$1.9
$1.8
$1.8
$1.8
$1.8
$1.8
$1.7
$1.7
$1.7
$1.7
$1.6
$1.6
$1.6
$1.4
$1.4
>$300BN Market Cap
Proofpoint
Medidata Solutions
LogMeIn
RealPage
Demandware
Twilio
Exact Target
Wix
Fleetmatics
Lifelock
CornerstoneOnDemand
Box
Skillsoft
Zendesk
Hubspot
$3.7
$3.3
$3.2
$2.9
$2.8
$2.7
$2.6
$2.6
$2.4
$2.4
$2.4
$2.3
$2.3
$2.3
$2.0
Coupa Software
Broadsoft
SPS Commerce
Constant Contact
Mindbody
Eloqua
$1.3
$1.3
$1.2
$1.1
$1.0
$1.0
40% OF MARKET CAP ACQUIRED
Source: CapIQ and public fillings.
Note: >$300BN market cap also includes 25 companies that are either public acquisitions <$1bn market cap or large private acquisitions >$500m market cap.
Salesforce
Workday
ServiceNow
Netsuite
Concur
Veeva
Atlassian
Ultimate Software
Athenahealth
Shopify
Ariba
Dealertrack
Successfactors
Appdynamics
Tableau
$59.9
$29.0
$21.1
$16.0
$9.3
$8.3
$6.2
$6.2
$5.9
$5.4
$5.2
$4.6
$4.0
$3.9
$3.7
$3.9
Xero
Taleo
LogMeIn
Marketo
Rightnow
New Relic
RingCentral
Omniture
Blackboard
Digital Insights
Cvent
2U
Responsys
Qualys
Blackline
Kenexa
$1.9
$1.9
$1.8
$1.8
$1.8
$1.8
$1.8
$1.7
$1.7
$1.7
$1.7
$1.6
$1.6
$1.6
$1.4
$1.4
>$300BN Market Cap
Proofpoint
Medidata Solutions
LogMeIn
RealPage
Demandware
Twilio
Exact Target
Wix
Fleetmatics
Lifelock
CornerstoneOnDemand
Box
Skillsoft
Zendesk
Hubspot
$3.7
$3.3
$3.2
$2.9
$2.8
$2.7
$2.6
$2.6
$2.4
$2.4
$2.4
$2.3
$2.3
$2.3
$2.0
Coupa Software
Broadsoft
SPS Commerce
Constant Contact
Mindbody
Eloqua
$1.3
$1.3
$1.2
$1.1
$1.0
$1.0
MORE THAN MEETS THE EYE
$400B Market Cap
Creation in Just the
Top 200 Companies
$180BN
Public
$129BNMajor Acquisitions
$104BNTop 100 Private
Cloud Companies
~$400B
MARKET
CAPTop 200
companies
1,000s of Private
Cloud Companies
Source: SLWA Blog
HUGE BACKLOG OF PRIVATE COMPANIES >$100BN MARKET CAP IN CLOUD 100
HOW DO I SCALE?
HOW MUCH SHOULD I
BURN?
HOW FAST SHOULD I BE GROWING?
KEY QUESTIONS FROM TOP PRIVATE CEOS
HOW FAST SHOULD I BE GROWING?
To Kristina Shen
THE NEW GROWTH STANDARD?
8 YEARS TO $1B
Dropbox is the Fastest SaaS
Company to $1 Billion Revenue Run
Rate
Years from $1M to $10M ARR
HOW DO THE TOP CLOUD COMPANIES PERFORM?
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs
AR
R (
in $
M)
Source: CapIQ, internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR.
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs
AR
R (
in $
M)
Years from $1M to $10M ARR
HOW DO THE TOP CLOUD COMPANIES PERFORM?
Source: CapIQ internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR.
$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
$ A
RR
(in
M)
Years
YEARS FROM $1M TO $100M ARR
Source: CapIQ, internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR. Note: Assuming it takes 24 months from founding to $1M ARR if do not have actual data.
YEARS FROM $1M TO $100M ARR
$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
$ A
RR
(in
M)
Years
5.3 yrsTop 25%
Source: CapIQ and internal sources. Includes 46 public or recently acquired public companies from the BVP Cloud Index. Excludes companies who reached $100M ARR prior to public
reported periods.
Note: Assuming it takes 24 months from founding to $1M ARR if do not have actual data. Use quarterly revenue times four as a proxy for ARR.
Public Cloud Companies
7.3 yrsMedian
10.6 yrsBottom 25%
From $1mm ARR
BVP GROWTH BENCHMARK
BEST
GOOD
BETTER
Years to $10M ARR
Years to $100M ARR
3 Years
7 Years
4 Years
10 Years
2 Years
5 Years
HOW MUCH SHOULD I BURN?
DEFINING THE EFFICIENCY SCORE
%
Annual
Revenue
Growth
Rule of 40 +=
% Profit
Margins
DEFINING THE EFFICIENCY SCORE
%
Annual
Revenue
Growth
Rule of 40 +=
% Profit
Margins
* Burn defined as FCF for this analysis
%
Annual
CARR
Growth
Efficiency Score += % Burn*
SHOPIFY 2013 GROWTH-DRIVEN EFFICIENCY SCORE
Power
112% -4% 108%
% Burn*% Revenue
Growth
=
VEEVA2013 FCF-DRIVEN EFFICIENCY SCORE
Power
62% 19%
% Burn*% Revenue
Growth
+ =
MULTIPLE SUCCESSFUL MODELS OF EFFICIENT GROWTH
81%
+
* Burn defined as FCF for this analysis
DIFFERENT EFFICIENCY SCORES AT DIFFERENT STAGES
Source: 43 companies in the BVP Cloud Index, CapIQ
Note: Average efficiency score of the 43 public cloud companies. Efficiency score defined as % annual CARR growth + % FCF margin.
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
73%
TIME
56% 53%45%
38% 35% 32%
THE BVP EFFICIENCY RULE (>$30M ARR)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EXPANSION($30-60M ARR)
% C
AR
R G
row
th+
% F
CF
Ma
rgin
70%
50%30%
IPO(~$100M ARR)
PUBLIC($150M+ ARR)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% R
ev.
Gro
wth
+ %
FC
F M
arg
in
70%50%
30%
EXPANSION($30-60M ARR)
IPO($60-100M ARR)
PUBLIC($100M+ ARR)
?
THE BVP EFFICIENCY RULE
THE BVP EFFICIENCY RULE (<$30M ARR)
BVP Efficiency Score
Net New
ARR
Net Cash
Burn
> 1
For Example:
$10
$25
($10)
Ending ARR Net Burn
($ in M)
$15M (= $25- $10)
$10M= 1.5BVP Efficiency
Score
2016 2017
HOW DO I SCALE?
CUSTOMER ACQUISITION COST CAC PAYBACK
CAC PAYBACK
PERIOD
(months)
TOTAL S&M COSTS
LAST QUARTER
=NEW CMRR ADDED LAST
QUARTER
X
% GROSS MARGIN
CAC COCKTAIL
CACCOCKTAIL FORMULA
SALES
# of AEs
Quota
Inside sales
Field /enterprise sales
Ramp time
Inside sales
Field sales
Attainment rate
$400k-$800k
$1-1.5m
1-3mo
6-9mo
70-90%
LEAD/OPPORTUNITY GENERATION
# of SDRs
Opportunities/SDR/month
Close rate
Marketing Spend
(% of Total S&M)
Inside/field sales model
Freemium/internet sales
15-25
15-30%
25-33%
33-67%
Find the model that works for you
UNDERSTANDING YOUR SALES MODEL
SMB EnterpriseMidmarket
12 Mos 18-24 Mos3-6 Mos
AVG ACV
CHURN /
UPSELL
CAC
PAYBACK
$12 - $50K<$12k $50K+
1% Monthly<3% Monthly <1% Monthly,
Upsell
MULTIPLE WAYS TO BE SUCCESSFUL: UPSELL MAJOR DRIVER
12 Mo CAC Payback, 100% Retention 24 Mo CAC Payback, 115% Retention
Note: Assumed 80% gross margin, and no other expenses.
Revenue
Cash Flows (Gross Profit – S&M)
S&M Costs
Year 1 Year 2 Year 3 Year 4Year 1 Year 2 Year 3 Year 4
$10
$8
$0
$10 $10 $10$8
$16
$24
$10
$8
$16
$12
$1
$13$12
$15
$24Result in same
cash flow after 4
years
2017 PREDICTIONS
ADVANCES IN AI ARE AWESOME
...BUT STILL DEPENDENT ON HUMANS.
THE YEAR OF HUMAN ASSISTED AI
SECURITY
Estimated 1mm unfilled
cybersecurity jobs
available
SALES & MARKETINGCUSTOMER SUPPORT
50% of customer service
agents failed to answer a
consumers questions
HEALTHCARE
#1
$12.8B per year on sales
acceleration technology
40% of healthcare
providers are expanding
IT budgets
Mapping
Payments
Communication(Messaging/Voice)
SSO
Customer
Engagement
Storage
Enterprise Search
Files
Background Check
Collaboration
IaaS
User Management
Identification
Social
AI
Banking
Location
Healthcare Security/Fraud
Test/Monitor
APIS WILL SERVE AS THE BACKBONE FOR A MAJORITY OF SOFTWARE INFRASTRUCTURE#2
COST OPTIMIZE YOUR PUBLIC
CLOUD INFRASTRUCTURE
AS YOU GROW
ELECTRONIC CALCULATOR
4
7
GT
7
5
8
+ - MRC M- M+
-6 ×
9 %
BASE INSTANCE
+ STORAGE COST
+ PROVISIONED IOPS FOR
DATABASES
+ LOCAL SSD
+10% FOR PREMIUM SUPPORT
+10% FOR DEDICATED
INSTANCES OR HOSTS
=
TOO EXPENSIVE
ARCHITECT FOR SUCCESS IN AN INFINITE COMPUTE WORLD
#3
FIELD SERVICES
VE
RT
ICA
LH
OR
IZO
NTA
L
CONSTRUCTION RETAIL SALES
EDUCATIONHEALTHCARE SAFETY / COMPLIANCE
AGRICULTUREEVENTS SMBS
COMMUNICATION
PAPER REPLACEMENT
(FORMS/INVOICING)
MOBILE UNLOCKS NON-DESK WORKER PRODUCTIVITY
#4
NPS EVERYTHING
#5
CUSTOMERS EMPLOYEES
U.S. Labor Force by
Generation, 1995-2015
Source of Graph: Pew Research Center tabulations of monthly 1995-2015. Current Population Surveys, Integrated Public Use Microdata Series (IPUMS)
Source of Data: Fast Company, Rob Hernandez, Future of Work; Forbes, Jeanne Meister, Future Workplace “Multiple Generations @ Work” Survey; PwC, Millennials at Work.
MILLENNIALS ARE A MAJORITY OF THE US WORKFORCE
think the performance review
process is flawed69%
“feel in the dark” about how their
managers think they are
performing
74%
expect to stay in job for less
than
3 years
91%
ranked personal development
as #1 reason for accepting a
job
65%
In millions
Boomer
sGen
Xers
Silents
Millennial
s
THE SCREENLESS SOFTWARE MOVEMENT
#6
7K
Alexa/
Echo has
skills
THE MARKET HAS FALLEN IN LOVE WITH VOICE
8.2MMAlexa/Echo‘s sold
since late 2014
intro
Source: Consumer Intelligence Research Partners
11.30%
9.50%
18.70% 19.00%
41.60%
When did you first start using
voice search/commands?
Source: MindMeld, SEL Blog by Greg Sterling 2016
Within the last 6 monthsBetween 6 months and 1 year agoBetween 1 to 2 years agoBetween 2 to 3 years agoMore than 3 years ago
20%…of queries on the
Google mobile app and
android devices are voice
searchesSundar Pichai
Google I/O Keynote
May 2016
VOICE
DIVERSE TEAMS WIN#7
of companies funded by American
VCs had “one core foreign born
team member such as CEO or
CTO.”
75%
of U.S. Billion-Dollar startups
were founded by immigrant.s
51%
of top 10 companies in silicon
valley by NASDAQ market
cap are run by women.
20%
profitability increase when
adding 30% more female
talent to a company.
15%
BVP’S 7 PREDICTIONS FOR 2017
1
APIs will serve as the backbone for
a majority of software infrastructure
The screenless software movement
Mobile unlocks non-desk worker productivity
NPS everything
Architect for infinite scale without
infinite spend
The year of human assisted AI
Diverse teams win
2
3
4
5
6
7
