BYRON DEETER
Bessemer Venture Partners
2016
BESSEMER’S 10 LAWS OF CLOUD COMPUTING
BYRON DEETER
www.bvp.com/cloud
@bdeeter
Source: Flickr/Clemens Grün
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3
Source: Victor J. Blue/Getty Images
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4 4
4
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5
Source: HBO/iStock
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6
Source: Blue Apron Blog
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7
Source: iStock
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8
Source: Flickr/Marco
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9
LAW 10: ONDEMAND EVERYTHING
Source: Microsoft
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10
Source: Flickr/AJ LEON
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11
Source: Docusign
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12
Source: Shutterstock
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13
LAW 09: GROW (EFFICIENTLY)
…OR DIE
Source: PCWallart.com
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14
TOP TIER $10M ARR COMPANY SHOULD GROW 300% YOY
Public Cloud Company YoY Growth
Best-In-Class Growth
(Starting From Four Quarters Prior to IPO)
% YoY
Growth
160%
Pre IPO
1 Yr
91%
72%
42%
140%
Top Quartile
Median
Bottom Quartile
120%
IPO
61%
47%
34%
1 Yr
42%
35%
26%
Post IPO
2 Yrs 3 Yrs
36%
33%
34%
24%
28%
22%
@ $10mm ARR
300%
@ $100mm ARR
100%
@ $300mm ARR
30%
100%
80%
60%
40%
20%
0%
T-4
T-2
T+0
T+2
T+4
T+6
T+8
T+10
Source: SEC fillings. BVP Cloud Index public companies. T = quarters
T+12
15
FASTER GROWTH IS REWARDED – 10% GROWTH = +1.0X
IN REVENUE MULTIPLE
45 Public Cloud Companies
10.0x
+10% growth results in +1.0x Rev Mult
9.0x
Atlassian Corporation
2016 Revenue Multiple
8.0x
Workday
The Ultimate Software Group
7.0x
ServiceNow
Veeva
6.0x
Proofpoint
5.0x
Medidata Solutions
4.0x
Qualys
LogMein
3.0x
2.0x
1.0x
RealPage
NetSuite
Salesforce
Cvent
LivePerson
Jive Software
Instructure
Mobileiron
HubSpot
Demandware
Appfolio, Inc.
LinkedIn
Benefitfocus
BroadSoft
Constant Contact
Shopify
New Relic
Cornerstone OnDemand
Intralinks
Bazaarvoice
Zendesk
Xero
Wix
Textura
y = 10.181x + 1.1297
R2 = 0.36068
Mindbody, Inc
Xactly
Castlight Health
Lifelock
Marin Software
0.0x
10%
20%
-1.0x
Source: 45 companies in BVP Cloud Index. CapIQ
30%
40%
50%
60%
’15-’16 Revenue Growth
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16
LAW 08: SALES EFFICIENCY IS
YOUR OXYGEN
Source: iStock
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17
Source: iStock
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18
CUSTOMER ACQUISITION COST - CAC PAYBACK
TOTAL SALES & MARKETING COSTS
OF PRIOR QUARTER
CAC PAYBACK PERIOD
=
(Months)
NEW CMRR ADDED IN PRIOR QUARTER X
GROSS MARGIN % OF THE BUSINESS
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19
EFFICIENT CAC PAYBACK = MORE FOUNDER OWNERSHIP
Resulting P&L for 3 companies growing at 50% new bookings with different CAC paybacks
1 Yr CAC Payback
Total cash burn: $0M
1.5 Yr CAC Payback
2 Yr CAC Payback
Total cash burn: $53M
Total cash burn: $106M
New Bookings
S&M Costs
Cash Flows (Gross Profit – S&M)
$51
$51
$10
$15
$23
($8) ($12)
($18)
$34
$10
($27)
$15
$23
($4) ($6)
($12)
($18)
($41)
$51
$34
$10
($9) ($14)
($20)
($27)
($41)
($61)
$34
($8)
($16) ($12) ($18)
($24)
($27)
($36)
($41)
($54)
($81)
Year 1 Year 2 Year 3 Year 4 Year 5
20
20
Note: Assumed 50% growth in new bookings every year, 80% gross margin, and other expenses equal 80% of prior year’s bookings.
Year 1 Year 2 Year 3 Year 4 Year 5
Year 1 Year 2 Year 3 Year 4 Year 5
$15
$23
LAW 07: CUSTOMER SUCCESS =
COMPANY SUCCESS
Source: iStock
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21
1% IMPROVEMENT IN CHURN = $100M+ IN VALUATION
$140
ARR of 3 Different Businesses
$120
$115
$ ARR
$100
$95
$80
$75
ARR in Y6
Mult
Equity Value
1% Monthly Upsell ~$115M
5x
$575M
~$95M
5x
$475M
~$75M
5x
$375M
(+1% growth; Net Negative
Churn)
$60
0% Churn
$40
(100% renewal + upsell)
$20
$0
Y1
Y2
Y3
ARR (0% monthly churn)
Y4
Y5
ARR (1% monthly churn)
Y6
1%Monthly Churn
(-1% growth)
ARR (1% net negative monthly churn)
1% Churn = $20M ARR = $100M in Valuation
Note: Assumes monthly new bookings increases by $5k per month.
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22
CUSTOMER SUCCESS MANAGEMENT
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23
LAW 06: CONTROL YOUR OWN
DESTINY… CASH IS KING
Source: iStock
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220%
BVP
BVPCloud
CloudIndex
Index
45 Publically
PublicallyTraded
TradedCompanies
Companies
IndexedasasofofJan.
Jan.2011
2011 || @
Indexed
@ 2/5/2016
12/31/2015
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
1/1/2011
(20%)
(40%)
1/1/2012
BVP Cloud Index
1/1/2013
Nasdaq Index
1/1/2014
S&P Index
1/1/2015
12/31/2015
1/1/2016
Dow Jones
25
v
220%
BVP
BVPCloud
CloudIndex
Index
45 Publically
PublicallyTraded
TradedCompanies
Companies
Indexed as
Indexed
as of
of Jan.
Jan.2011
2011||@@2/5/2016
2/5/2016
200%
180%
160%
140%
120%
100%
80%
60%
40%
20%
0%
1/1/2011
(20%)
(40%)
1/1/2012
BVP Cloud Index
1/1/2013
1/1/2014
Nasdaq
Index
S&P Index
www.bvp.com/cloud
1/1/2015
Dow Jones
1/1/2016
26
www.bvp.com/cloud
2/5/2016
2/4/2016
2/3/2016
2/2/2016
2/1/2016
1/31/2016
2/4/2016, $167
1/30/2016
1/29/2016
1/28/2016
1/27/2016
1/26/2016
1/25/2016
1/24/2016
$200
1/23/2016
1/22/2016
1/21/2016
1/20/2016
1/19/2016
1/18/2016
1/17/2016
1/16/2016
1/15/2016
1/14/2016
1/13/2016
1/12/2016
1/11/2016
1/10/2016
1/9/2016
1/8/2016
1/7/2016
1/6/2016
1/5/2016
1/4/2016
1/3/2016
1/2/2016
$210
1/1/2016
12/31/2015
$63BN MARKET CAP LOST IN 5 WEEKS
BVP Cloud Index - Market Cap YTD
($ in bn)
12/31/2015,
$202
$190
2/5/2016, $138
$180
$170
$160
$150
$140
$130
27
PRIVATE CLOUD MULTIPLES ARE TRADING AT A PREMIUM
TO PUBLIC CLOUD MULTIPLES… BUT IT CANT LAST
NTM Multiples Over Time
Average 10-17x
16.0x
14.0x
14.0x
12.0x
The public /
private gap
will converge
10.0x
8.0x
6.0x
4.0x
3.8x
2.8x
2.0x
Public cloud
multiples
are cheap
0.0x
1/1/2011
1/1/2012
1/1/2013
BVP Cloud Index
Legacy Software
1/1/2014
1/1/2015
1/1/2016
Private Cloud Transactions
Source: 45 companies in BVP Cloud Index as of 2/4/2016. CapIQ.
Note: Private cloud transactions based on 69 private transactions. In the last 6 months, the average ARR multiple
paid was 14.0x. BVP Cloud Index multiple and Legacy software multiples are both NTM GAAP revenue.
28
LAW 05: 5 C'S OF CLOUD FINANCE
Source: iStock
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5 C’s OF CLOUD FINANCE
1
2
3
4
5
CARR & ARR
CAC PAYBACK
CHURN
CLTV
CASH FLOW
Committed
Annual
Recurring
Revenue
(CARR)
Customer
Acquisition Cost
Logo Churn
Customer
Lifetime Value
(Gross Margin
Affected)
Gross Burn Rate
Payback Period
MRR Gross
Churn
Net Burn Rate
Free Cash Flow
Annual
Recurring
Revenue (ARR)
MRR Net
Churn
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BUILD YOUR DASHBOARD TO FLY YOUR ROCKETSHIP…or RIDE YOUR UNICORN
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31
MULTIPLE WAYS TO BE SUCCESSFUL:
KNOW YOUR MODEL AND NAIL IT
1 Yr CAC Payback, 100% Retention
Revenue
S&M Costs
Cash Flows (Gross Profit – S&M)
$10
$10$8
2 Yr CAC Payback, 115% Retention
$24
$16
$10
Results in same cash flow
after 4 years
$10
$10
$13$12
$15
$1
$0
($8)
Year 1
$12
$24
($8)
Year 2
Year 3
Note: Assumed 80% gross margin, and no other expenses.
Year 4
($16)
Year 1
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Year 2
Year 3
Year 4
32
TAKEAWAY: GUARDRAILS FOR VALUATION
Representative SaaS Business ($15mm ARR)
1
2
3
4
5
CARR
CAC PAYBACK
CHURN
% Fwd Growth
(Mos)
(Monthly)
Good
50%
24
1-3%
3x
<1x
Better
50-100%
12 - 24
<1%
3-5x
1x
Best
100%+
<12
Net
negative
5x+
>1x
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CLTV / CAC
CASH FLOW
(New ARR/Mo Burn)
33
POST SERIES A: THE 1-1-1 RULE!
1x
1%
1yr
NET NEW ARR
<-1% MONTHLY
GROSS CHURN
CAC PAYBACK
NET BURN
>+1% NET CHURN
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34
LAW 04: THE BEST PRODUCT IS
FINALLY STARTING TO WIN
Source: iStock
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35
Source: docs.oracle.com
Source: iStock
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37
Source: Slack
38
Source: New Relic
LAW 03: THE ASCENDANCY OF DEVELOPERS
40
APIS TO ACCELERATE YOUR BUSINESS
Uber Growth
Mapping
Global bookings, in billions
Payments
$30.0
$26.1
$25.0
Communication
(Messaging/Voice)
$20.0
Email
$15.0
SSO
$10.8
$10.0
Customer Engagement
$5.0
$2.9
$0.6
Storage
$0.0
2013
Source: Reuters.
2014
2015
2016
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41
LAW 02: INSPIRE (AND HIRE) WITH
VISION
Source: iStock
42
INSPIRE (AND HIRE) WITH VISION
“
Vision - The dream; a team's true north. Primary
objective is to inspire and create a shared sense of
purpose throughout the company.
”
LinkedIn’s Vision:
Create economic opportunity for every member of the global workforce
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43
LAW 01: MOBILE IS EATING THE WORLD
....WIDE WEB!
Source: iStock
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44
MOBILE IS A GAME CHANGER FOR THE ENTERPRISE
~EVERYONE IN ENTERPRISE B2B
NOW HAS A SMARTPHONE
GLOBAL PENETRATION
85%
1 –> 73%
Americans between 18-29
INTERNET USAGE TIPPED TO
MOBILE
>50%
Internet usage on mobile vs desktop
Global Mobile Penetration 1995 - 2014
REACHES AN UNTOUCHED
WORKFORCE
80%
Workforce are non-desk workers
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
45
HORIZONTAL
VERTICAL
USE CASES THAT SPEND >50% AWAY FROM A DESKTOP
Construction
Field Services
Field Sales
Healthcare
Education
Retail
Events
Agriculture
SMBs
Collaboration
Paper Replacement
(Forms/Invoicing)
kk
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46
WAVE 1 = CONTENT CONSUMPTION
WAVE 2 = CONTENT CREATION
2010
CONTENT
CONSUMPTION
2015
2020
The mobile version of the cloud app
Paper replacement
Collaboration/Communication
CONTENT
CREATION
In the field working
???
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47
LIMITED REAL ESTATE = CONTEXTUAL AWARENESS IS THE FUTURE
DOWNLOAD NOW @ www.speakeasy.co
48
MESSAGING IS THE KILLER MOBILE EXPERIENCE
•
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
•
First example of success – Slack4
• 2M DAU
• 570M paid users
• 800M+ messages sent a month
•
4k platform apps
Source: (1) Business Insider. (2) Velocify., (3) eWeek. (4) Slack.
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49
BESSEMER’S 10 LAWS OF CLOUD COMPUTING
10
09
OnDemand
EVERYTHING:
GROW
(efficiently) or
die.
05
04
5 C's of cloud
finance.
Best
PRODUCT is
finally starting
to win. .
08
Sales
efficiency is
your oxygen.
03
The
ascendancy of
Developers
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07
06
Customer
SUCCESS =
company
success.
Control your
own destiny…
CASH is king.
02
01
Inspire (and hire)
with vision
MOBILE is
eating the
world...wide
web
51
51
Available for Download:
www.bvp.com/cloud
@bdeeter
@kshenster
© 2016 Bessemer Venture Partners
@ bessemervp
Don’t live up to your
expectations, live up to
your potential”
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