STATE OF THE CLOUD REPORT Byron Deeter, Kristina Shen, Anna Khan www.bvp.com/cloud
2017
2016
WOWZA WHAT A YEAR
3
Source: Uber
4 Source: New York Stock Exchange
5 Source: Make A GIF
6 Source: Dean DeLisle, Blog Post
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 120% 110% 100% 90% 80% 70% 60% 1/1/2016 1/3/2016 1/5/2016 1/7/2016 1/9/2016 1/11/2016 1/13/2016 1/15/2016 1/17/2016 1/19/2016 1/21/2016 1/23/2016 1/25/2016 1/27/2016 1/29/2016 1/31/2016 2/2/2016 2/4/2016 2/6/2016 2/8/2016 2/10/2016 2/12/2016
50%
BVP Index
Nasdaq
S&P
Source: 43 companies in BVP Cloud Index as of 02/01/2017. CapIQ
Dow Jones
...BUT THE MARKET COMPLETELY REBOUNDED IN 2H 2016 BVP Cloud Index (1/1/2016 – 2/12/2016)
BVP Cloud Index (2/12/2016-2/3/2017)
43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @ 02/03/2017
43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @ 02/03/2017 120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
1/1/2016 1/3/2016 1/5/2016 1/7/2016 1/9/2016 1/11/2016 1/13/2016 1/15/2016 1/17/2016 1/19/2016 1/21/2016 1/23/2016 1/25/2016 1/27/2016 1/29/2016 1/31/2016 2/2/2016 2/4/2016 2/6/2016 2/8/2016 2/10/2016 2/12/2016
120%
BVP Index
Nasdaq
S&P
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ
Dow Jones
BVP Index
Nasdaq
S&P
Dow Jones
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ
BVP Index Nasdaq S&P Dow Jones
1/1/2017
11/1/2016
9/1/2016
7/1/2016
5/1/2016
3/1/2016
1/1/2016
11/1/2015
9/1/2015
7/1/2015
5/1/2015
3/1/2015
1/1/2015
11/1/2014
9/1/2014
7/1/2014
5/1/2014
3/1/2014
1/1/2014
11/1/2013
9/1/2013
7/1/2013
5/1/2013
3/1/2013
1/1/2013
11/1/2012
9/1/2012
7/1/2012
5/1/2012
3/1/2012
1/1/2012
11/1/2011
9/1/2011
7/1/2011
5/1/2011
3/1/2011
1/1/2011
JUST A SMALL BUMP IN A CRAZY RIDE UP! BVP Cloud Index
43 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 02/03/2017
350%
300%
250%
200%
150%
100%
50%
FEWEST TECH IPOS SINCE FINANCIAL CRISIS 50 Number of tech IPOs on U.S. Stock exchanges
45 40 35 30 25 20 15 10 5 0 2008
2009
2010
Source: Bloomberg *Tech IPOs less than $5MM are not included | *Listings for this year are through Nov 15
2011
2012
2013
2014
2015
2016
TOTAL CLOUD IPOS IN 2015-2017
company
2015
company
2016-2017
$6.2B
$2.9B
$4.3B
$1.4B
$2.3B
$1.3B
$989M
$592M
$826M
$492M
$694M $331M Total Source: CapIQ
$15.6B
Total
$6.7B
5 OF 12 CLOUD IPOS ARE BVP-FUNDED
company
2015
company
2016-2017
$6.2B
$2.9B
$4.3B
$1.4B
$2.3B
$1.3B
$989M
$592M
$826M
$492M
$694M $331M Total Source: CapIQ
$15.6B
Total
$6.7B
4X MORE M&A 2016 THAN ANY OTHER YEAR M&A From 2009 to Today
$60,713
$60,000
$50,000
$40,000
$30,000
$20,000
$14,921
$13,708
$10,000
$1,676
$2,279
2009
2010
$17,655
$8,889
$5,627
$3,700
$0
Source: CapIQ
2011
2012
2013
2014
2015
2016
2017
PUBLIC CLOUD COMPANIES 2009 – 2017 >$300BN Market Cap Salesforce LinkedIn 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
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
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
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.
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 >$300BN Market Cap Salesforce LinkedIn 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
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
Xero Taleo LogMeIn Marketo Rightnow New Relic RingCentral Omniture Blackboard Digital Insights Cvent 2U Responsys Qualys Blackline Kenexa
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.
$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
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 $180BN
$400B Market Cap Creation in Just the Top 200 Companies
Public
$129BN
Major Acquisitions
~$400B MARKET CAP Top 200 companies
Source: SLWA Blog
$104BN Top 100 Private Cloud Companies
1,000s of Private Cloud Companies
HUGE BACKLOG OF PRIVATE COMPANIES >$100BN MARKET CAP IN CLOUD 100
KEY QUESTIONS FROM TOP PRIVATE CEOS
HOW FAST SHOULD I BE GROWING?
HOW MUCH SHOULD I BURN?
HOW DO I SCALE?
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
HOW DO THE TOP CLOUD COMPANIES PERFORM? Years from $1M to $10M ARR $10 $9 $8
ARR (in $M)
$7 $6 $5 $4 $3 $2 $1 $0 0.5 Yr Source: CapIQ, internal sources and company announcements.. Note: Use quarterly revenue times four as a proxy for ARR.
1 Yr
1.5 Yr
2 Yrs
2.5 Yrs
HOW DO THE TOP CLOUD COMPANIES PERFORM? Years from $1M to $10M ARR $10 $9 $8
ARR (in $M)
$7 $6 $5 $4 $3 $2 $1 $0 0.5 Yr Source: CapIQ internal sources and company announcements.. Note: Use quarterly revenue times four as a proxy for ARR.
1 Yr
1.5 Yr
2 Yrs
2.5 Yrs
YEARS FROM $1M TO $100M ARR $100 $90 $80
$ ARR (in M)
$70 $60 $50 $40 $30 $20 $10 $0 1
2
3
4
5
6
7
8
9
10
11
Years 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.
12
13
14
YEARS FROM $1M TO $100M ARR Public Cloud Companies $100
5.3 yrs
7.3 yrs
10.6 yrs
Top 25%
Median
Bottom 25%
$90 $80
$ ARR (in M)
$70 $60 $50 $40 $30 $20 $10 $0 1
2
3
4
5
6
7
8
9
10
11
12
13
14
Years 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.
BVP GROWTH BENCHMARK From $1mm ARR
BEST
BETTER GOOD
Years to $10M ARR
4 Years
3 Years
2 Years
Years to $100M ARR
10 Years
7 Years
5 Years
HOW MUCH SHOULD I BURN?
DEFINING THE EFFICIENCY SCORE
Rule of 40
=
% Annual Revenue Growth
+
% Profit Margins
DEFINING THE EFFICIENCY SCORE
Rule of 40
Efficiency Score
=
% Annual Revenue Growth
+
% Profit Margins
=
% Annual CARR Growth
+
% Burn*
* Burn defined as FCF for this analysis
MULTIPLE SUCCESSFUL MODELS OF EFFICIENT GROWTH
SHOPIFY 2013 GROWTH-DRIVEN EFFICIENCY SCORE 112%
+
% Revenue
-4%
=
% Burn*
108% Power
Growth
VEEVA 2013 FCF-DRIVEN EFFICIENCY SCORE 62%
% Revenue
+
19%
% Burn*
=
81% Power
Growth * Burn defined as FCF for this analysis
DIFFERENT EFFICIENCY SCORES AT DIFFERENT STAGES 100% 90% 80%
73%
70% 60%
56%
50%
53%
40%
45%
38%
30%
35%
32%
20% 10%
TIME 0%
Prior
IPO – 3Y
IPO – 2Y
IPO – 1Y
IPO
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.
IPO + 1Y
IPO + 2Y
IPO + 3Y
THE BVP EFFICIENCY RULE (>$30M ARR) 100%
% CARR Growth + % FCF Margin
90% 80% 70% 60% 50%
70% 50%
40% 30% 20%
30%
10% 0%
EXPANSION
IPO
PUBLIC
($30-60M ARR)
(~$100M ARR)
($150M+ ARR)
THE BVP EFFICIENCY RULE 100%
% Rev. Growth + % FCF Margin
90% 80% 70% 60% 50% 40%
?
70%
30%
50%
20%
30%
10% 0%
EXPANSION
IPO
PUBLIC
($30-60M ARR)
($60-100M ARR)
($100M+ ARR)
THE BVP EFFICIENCY RULE (<$30M ARR) BVP Efficiency Score
For Example: ($ in M)
$25 $10
Net New ARR Net Cash Burn
>
1
2017
2016
($10) Ending ARR
$15M (= $25- $10)
$10M
Net Burn
= 1.5 BVP Efficiency Score
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 FORMULA
SALES # of AEs Quota Inside sales
$400k-$800k
Field /enterprise sales
$1-1.5m
Ramp time Inside sales
1-3mo
Field sales
6-9mo
Attainment rate
70-90%
LEAD/OPPORTUNITY GENERATION # of SDRs Opportunities/SDR/month
CAC COCKTAIL
Close rate
15-25 15-30%
Marketing Spend (% of Total S&M)
Inside/field sales model Freemium/internet sales
25-33% 33-67%
UNDERSTANDING YOUR SALES MODEL Find the model that works for you
SMB
Midmarket
Enterprise
CAC PAYBACK
3-6 Mos
12 Mos
18-24 Mos
AVG ACV
<$12k
$12 - $50K
$50K+
CHURN / UPSELL
<3% Monthly
1% Monthly
<1% Monthly, Upsell
MULTIPLE WAYS TO BE SUCCESSFUL: UPSELL MAJOR DRIVER 12 Mo CAC Payback, 100% Retention Revenue
24 Mo CAC Payback, 115% Retention
S&M Costs
$24
Cash Flows (Gross Profit â&#x20AC;&#x201C; S&M)
Result in same cash flow after 4 years
$16 $10
$10
$8
$10
$10
$13
$12
$10
$24
$12
$15
$1
$0
$8
$8 $16
Year 1
Year 2
Year 3
Year 4
Year 1
Year 2
Year 3
Year 4
Note: Assumed 80% gross margin, and no other expenses.
2017 PREDICTIONS
ADVANCES IN AI ARE AWESOME
...BUT STILL DEPENDENT ON HUMANS.
#1
THE YEAR OF HUMAN ASSISTED AI
CUSTOMER SUPPORT
50% of customer service agents failed to answer a consumers questions
HEALTHCARE
40% of healthcare providers are expanding IT budgets
SALES & MARKETING
$12.8B per year on sales acceleration technology
SECURITY
Estimated 1mm unfilled cybersecurity jobs available
#2
APIS WILL SERVE AS THE BACKBONE FOR A MAJORITY OF SOFTWARE INFRASTRUCTURE
Mapping
Communication (Messaging/Voice)
Identification
Payments
Files
Social
Banking
Background Check
Customer Engagement
Collaboration
Location
SSO
Security/Fraud
Healthcare
AI
IaaS
Enterprise Search
Storage
User Management
Test/Monitor
#3
ELECTRONIC CALCULATOR
ARCHITECT FOR SUCCESS IN AN INFINITE COMPUTE WORLD
COST OPTIMIZE YOUR PUBLIC CLOUD INFRASTRUCTURE AS YOU GROW
BASE INSTANCE + STORAGE COST + PROVISIONED IOPS FOR DATABASES + LOCAL SSD +10% FOR PREMIUM SUPPORT +10% FOR DEDICATED INSTANCES OR HOSTS
= TOO EXPENSIVE +-
MRC
7
7
8
9
GT
4
5
6
M-
M+
% -
Ã&#x2014;
HORIZONTAL
MOBILE UNLOCKS NON-DESK WORKER PRODUCTIVITY
VERTICAL
#4
CONSTRUCTION
FIELD SERVICES
RETAIL SALES
HEALTHCARE
EDUCATION
SAFETY / COMPLIANCE
EVENTS
AGRICULTURE
SMBS
COMMUNICATION
PAPER REPLACEMENT (FORMS/INVOICING)
#5
NPS EVERYTHING
CUSTOMERS
EMPLOYEES
MILLENNIALS ARE A MAJORITY OF THE US WORKFORCE U.S. Labor Force by Generation, 1995-2015 In millions Boomers Gen Xers Silents
69%
think the performance review process is flawed
74%
“feel in the dark” about how their managers think they are performing
91%
expect to stay in job for less than 3 years
65%
ranked personal development as #1 reason for accepting a job
Millennials
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.
#6 DIVERSE TEAMS WIN 75%
20%
of companies funded by American VCs had â&#x20AC;&#x153;one core foreign born team member such as CEO or CTO.â&#x20AC;?
of top 10 companies in silicon valley by NASDAQ market cap are run by women.
51%
15%
of U.S. Billion-Dollar startups were founded by immigrant.s
profitability increase when adding 30% more female talent to a company.
#7
THE SCREENLESS SOFTWARE MOVEMENT
THE MARKET HAS FALLEN IN LOVE WITH VOICE
8.2MM
Alexa/ Echo has
7K
Alexa/Echoâ&#x20AC;&#x2DC;s sold since late 2014 intro
skills
Source: Consumer Intelligence Research Partners
20%
VOICE
41.60%
â&#x20AC;Śof queries on the Google mobile app and android devices are voice searches
When did you first start using voice search/commands?
Sundar Pichai Google I/O Keynote May 2016
18.70%
19.00%
11.30% 9.50%
More than 3 years ago
Between 2 to 3 years ago
Between 1 to 2 years ago
Between 6 months and 1 year ago
Within the last 6 months
Source: MindMeld, SEL Blog by Greg Sterling 2016
BVPâ&#x20AC;&#x2122;S 7 PREDICTIONS FOR 2017 1
The year of human assisted AI
2
APIs will serve as the backbone for a majority of software infrastructure
3
Architect for infinite scale without infinite spend
4
Mobile unlocks non-desk worker productivity
5
NPS everything
6
Diverse teams win
7
The screenless software movement