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STATE OF THECLOUD REPORT 2017Byron Deeter, Kristina Shen, Anna Khan
w w w . b v p . c o m / c l o u d
2016WOWZAWHAT A YEAR
3Source: Uber
4Source: New York Stock Exchange
5Source: Make A GIF
6Source: 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/
2016
1/3/
2016
1/5/
2016
1/7/
2016
1/9/
2016
1/11
/201
61/
13/2
016
1/15
/201
61/
17/2
016
1/19
/201
61/
21/2
016
1/23
/201
61/
25/2
016
1/27
/201
61/
29/2
016
1/31
/201
62/
2/20
162/
4/20
162/
6/20
162/
8/20
162/
10/2
016
2/12
/201
6
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/
2016
1/3/
2016
1/5/
2016
1/7/
2016
1/9/
2016
1/11
/201
61/
13/2
016
1/15
/201
61/
17/2
016
1/19
/201
61/
21/2
016
1/23
/201
61/
25/2
016
1/27
/201
61/
29/2
016
1/31
/201
62/
2/20
162/
4/20
162/
6/20
162/
8/20
162/
10/2
016
2/12
/201
6
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/
2011
3/1/
2011
5/1/
2011
7/1/
2011
9/1/
2011
11/1
/201
1
1/1/
2012
3/1/
2012
5/1/
2012
7/1/
2012
9/1/
2012
11/1
/201
2
1/1/
2013
3/1/
2013
5/1/
2013
7/1/
2013
9/1/
2013
11/1
/201
3
1/1/
2014
3/1/
2014
5/1/
2014
7/1/
2014
9/1/
2014
11/1
/201
4
1/1/
2015
3/1/
2015
5/1/
2015
7/1/
2015
9/1/
2015
11/1
/201
5
1/1/
2016
3/1/
2016
5/1/
2016
7/1/
2016
9/1/
2016
11/1
/201
6
1/1/
2017
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.
SalesforceLinkedIn
WorkdayServiceNow
NetsuiteConcur
VeevaAtlassian
Ultimate Software Athenahealth
ShopifyAriba
DealertrackSuccessfactorsAppdynamics
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
XeroTaleo
LogMeInMarketo
RightnowNew Relic
RingCentralOmniture
BlackboardDigital Insights
Cvent2U
ResponsysQualys
BlacklineKenexa
$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
ProofpointMedidata Solutions
LogMeInRealPage
DemandwareTwilio
Exact TargetWix
FleetmaticsLifelock
CornerstoneOnDemandBox
SkillsoftZendeskHubspot
$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 SoftwareBroadsoft
SPS CommerceConstant Contact
MindbodyEloqua
$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.
SalesforceLinkedIn
WorkdayServiceNow
NetsuiteConcur
VeevaAtlassian
Ultimate Software Athenahealth
ShopifyAriba
DealertrackSuccessfactorsAppdynamics
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
XeroTaleo
LogMeInMarketo
RightnowNew Relic
RingCentralOmniture
BlackboardDigital Insights
Cvent2U
ResponsysQualys
BlacklineKenexa
$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
ProofpointMedidata Solutions
LogMeInRealPage
DemandwareTwilio
Exact TargetWix
FleetmaticsLifelock
CornerstoneOnDemandBox
SkillsoftZendeskHubspot
$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 SoftwareBroadsoft
SPS CommerceConstant Contact
MindbodyEloqua
$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
$180BNPublic
$129BNMajor Acquisitions
$104BNTop 100 Private
Cloud Companies~$400BMARKET
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
ARR
(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
ARR
(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
$ AR
R (i
n 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
$ AR
R (i
n 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 ARRBVP 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
=
VEEVA 2013 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, CapIQNote: 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
Mar
gin
70%50%
30%
IPO(~$100M ARR)
PUBLIC($150M+ ARR)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% R
ev. G
row
th +
% F
CF
Mar
gin
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
> 1For Example:
$10
$25
($10)
Ending ARR Net Burn
($ in M)
$15M (= $25- $10)
$10M= 1.5
BVP 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
QuotaInside sales
Field /enterprise sales
Ramp timeInside sales
Field sales
Attainment rate
$400k-$800k$1-1.5m
1-3mo6-9mo
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 youUNDERSTANDING 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
7GT
75
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
VER
TIC
AL
HO
RIZ
ON
TAL
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 performing74%
expect to stay in job for less than 3 years91%
ranked personal development as #1 reason for accepting a job65%
In millions
Boomers
Gen Xers
Silents
Millennials
DIVERSE TEAMS WIN#6
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%
THE SCREENLESS SOFTWARE MOVEMENT
#7
7KAlexa/
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 KeynoteMay 2016
VOICE
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