What goes into building an enduring cloud business? Bessemer investors Byron Deeter, Kristina Sheen, and Anna Khan reveal the G.R.I.T. framework and ways for cloud founders to develop new levels of operational rigor. In this presentation, Bessemer unveils insights into the cloud industry, Good, Better, Best frameworks for SaaS startups, and the 2019 technology trends and predictions Bessemer is most excited about. Follow the Bessemer Cloud Team on Twitter: @bdeeter @kshenster @annarchyy About Bessemer Venture Partners: Bessemer Venture Partners was born from innovations in steel that literally forged modern building and manufacturing. Today, we work with people who want to create revolutions of their own. We've been fortunate to be a part of over 120 IPOs in the last 50 years, including Shopify, Yelp, LinkedIn, Skype, LifeLock, Twilio, SendGrid, DocuSign, Wix, Box, and MindBody. www.bvp.com @BessemerVP

1. State Of The Cloud 2019
BYRON DEETER
Partner
BVP
@bdeeter
KRISTINA SHEN
Partner
BVP
@kshenster
ANNA KHAN
Vice President
BVP
@annarchyy

2. Byron Deeter
Partner
BVP
@bdeeter
Kristina Shen
Partner
BVP
@kshenster
State Of The Cloud 2019
www.bvp.com/cloud
Anna Khan
Vice President
BVP
@annarchyy

3. BESSEMER’S
TOP 10 LAWS
OF CLOUD
COMPUTING
2008

4. 0

5. HOW MANY $1B+
PRIVATE CLOUD
COMPANIES ARE
THERE, TODAY?
HOW MANY $1B+
PRIVATE CLOUD
COMPANIES ARE
THERE, TODAY?

7. 55

8. S o u r c e : T e c h C r u n c h , F o r b e s , R e c o d e , M a r k e t W a t c h , M o r g a n S t a n l e y H e a d l i n e s

9. S A A S T R A N N U A L 2 0 1 9
S o u r c e : A r i L e v y , T w i t t e r

10. S A A S T R A N N U A L 2 0 1 9

11. 2018 ALONE SAW >$90B
OF LARGE M&A
$1.9B
$2.9B$8B $7.5B
$2.4B $1.6B $1.4B
$33B
S o u r c e : C a p I Q a n d P i t c h b o o k

12. ~$44B ALSO ADDED IN MARKET
CAP THROUGH CLOUD IPOS
S o u r c e : C a p I Q a n d P i t c h b o o k ( M a r k e t C a p a f t e r D a y 1 o f T r a d i n g . )

13. IN FACT THE BUYING DEMAND FOR
CLOUD SHARES HAS HIT RECORD HIGHS
VCDollarsRaised($B)
$MarketCap($B)
Comb in ed Clou d L iq u id ity 2 0 1 0 – 2 0 1 8 , an d VC I nvestments Rais ed
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
$-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
2010 2011 2012 2013 2014 2015 2016 2017 2018
M&A IPO VC Dollars Raised
S A A S T R A N N U A L 2 0 1 9
S o u r c e : C a p I Q a n d P i t c h b o o k

15. $0
$200
$400
2010 2011 2012 2013 2014 2015 2016
WE PREDICTED THE CLOUD MARKET
CAP WOULD HIT $500B IN 2020
$BMarketCap
Pu b lic Clou d Market Cap
S A A S T R A N N U A L 2 0 1 9
$250
S o u r c e : C a p I Q a n d P i t c h b o o k

16. WE PREDICTED THE CLOUD MARKET
CAP WOULD HIT $500B IN 2020
$BMarketCap
Pu b lic Clou d Market Cap
S A A S T R A N N U A L 2 0 1 9
$0
$200
$400
$600
$800
$1,000
$1,200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
$500B
S o u r c e : C a p I Q a n d P i t c h b o o k

17. INSTEAD, WE HIT THE MARK 2 YEARS
EARLIER IN MARCH 2018
$BMarketCap
Pu b lic Clou d Market Cap
S A A S T R A N N U A L 2 0 1 9
$0
$200
$400
$600
$800
$1,000
$1,200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
March 2nd 2018
$500B $500B
S o u r c e : C a p I Q a n d P i t c h b o o k

18. PUBLIC CLOUD HAS A PATH TO $1T+$BMarketCap
Total Clou d Market Cap
S A A S T R A N N U A L 2 0 1 9
$690B
Feb 5th 2019
$1T
$0
$200
$400
$600
$800
$1,000
$1,200
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
S o u r c e : C a p I Q a n d P i t c h b o o k

19. THE CLOUD 100 IS
VALUED AT $175B+
S o u r c e : P i t c h b o o k

20. HOW DO WE
PROTECT FOR
VOLATILITY ?
S A A S T R A N N U A L 2 0 1 9
BVP Nasdaq Emerging Cloud Index

21. HOW TO BUILD A
RESILIENT COMPANY

22. Q: WHEN WAS THE
LONGEST BULL
MARKET?

23. Longest Bull Run in
History ~10 years
2nd Longest Bull
Run 9.5 years
S o u r c e : y a h o o f i n a n c e . S & P 5 0 0 f r o m 1 9 5 0 t o 1 / 2 9 / 2 0 1 9 .

24. HOW TO BUILD A
RESILIENT COMPANY
GROWTH
(ARR)
S A A S T R A N N U A L 2 0 1 9

25. $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
$ARR(inM)
Years
YEARS FROM $1M TO $100M ARR
S o u r c e : C a p I Q , i n t e r n a l s o u r c e s a n d c o m p a n y a n n o u n c e m e n t s .
N o t e : U s e q u a r t e r l y r e v e n u e t i m e s f o u r a s a p r o x y f o r A R R .
N o t e : A s s u m i n g i t t a k e s 2 4 m o n t h s f r o m f o u n d i n g t o $ 1 M A R R i f d o n o t h a v e a c t u a l d a t a .
S A A S T R A N N U A L 2 0 1 9
$100

26. YEARS FROM $1M TO $100M ARR
S A A S T R A N N U A L 2 0 1 9
$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
$ARR(inM)
Years
Pu b lic Clou d Comp an ies
5.3 yrs
Top 25%
7.3 yrs
Median
10.6 yrs
Bottom
25%
S o u r c e : C a p I Q , i n t e r n a l s o u r c e s a n d c o m p a n y a n n o u n c e m e n t s . .
N o t e : U s e q u a r t e r l y r e v e n u e t i m e s f o u r a s a p r o x y f o r A R R .
N o t e : A s s u m i n g i t t a k e s 2 4 m o n t h s f r o m f o u n d i n g t o $ 1 M A R R i f d o n o t h a v e a c t u a l d a t a .

27. BVP GROWTH BENCHMARK
S A A S T R A N N U A L 2 0 1 9
F rom $ 1 mm ARR
Yearsto$10MARR
Yearsto$100MARR
3Years
7Years
4Years
10Years
2Years
5Years
BEST
GOOD
BETTER

28. HOW TO BUILD A
RESILIENT COMPANY
GROWTH
(ARR)
S A A S T R A N N U A L 2 0 1 9
RETENTION
IS YOUR
BEST FRIEND

29. RETENTION FOR DIFFERENT
CUSTOMER SEGMENTS
S A A S T R A N N U A L 2 0 1 9
Gross Retention 80 – 90%70 – 80% 90%+
Net Retention 90 – 120%80 – 100% 100%+
Average ACV $12 – $50K<$12k $50K+
SMB EnterpriseMidmarket

30. S A A S T R A N N U A L 2 0 1 9
RETENTION IS A MAJOR DRIVER
OF VALUATION
$40
$60
$85
$115
$150
$180
$200
50%
42%
35%
30% 20%
11%
0%
20%
40%
60%
80%
100%
$0
$50
$100
$150
$200
$250
$300
$350
2013 2014 2015 2016 2017 2018 2019
Net Retention 110%
Assumed 2019
Revenue Mult 10x
Enterprise
Value
$2.0bn

31. S A A S T R A N N U A L 2 0 1 9
AN ADDITIONAL 1% IN NET
RETENTION = $100M OF VALUE
Net Retention 125%
Enterprise
Value $3.5bn
Increased
Value +$1.5bn
$40
$66
$102
$148
$209
$276
$347
65%
54%
46%
41% 32%
26%
0%
20%
40%
60%
80%
100%
$0
$50
$100
$150
$200
$250
$300
$350
2013 2014 2015 2016 2017 2018 2019

32. S A A S T R A N N U A L 2 0 1 9
CHURN DRAMATICALLY
DECREASES VALUE
Net Retention 100%
Enterprise
Value $1.4bn
Decreased
Value -$630m
$40
$56
$75
$97
$120
$135 $137
40%
34%
29%
24%
13%
1%
0%
20%
40%
60%
80%
100%
$0
$50
$100
$150
$200
$250
$300
$350
2013 2014 2015 2016 2017 2018 2019

33. S A A S T R A N N U A L 2 0 1 9
+

34. HOW TO BUILD A
RESILIENT COMPANY
GROWTH
(ARR)
S A A S T R A N N U A L 2 0 1 9
RETENTION
IS YOUR
BEST FRIEND
IN THE
BANK

35. S A A S T R A N N U A L 2 0 1 9

36. S A A S T R A N N U A L 2 0 1 9
QUEEN

37. MANAGE
YOUR
RUNWAY
Buffer for
contingency plan
18 – 24 months
runway
Hiring is a big
lever

38. THINK ONE FINANCING AHEAD
ARR Reven u e Mu ltip les of Clou d Comp an ies
S o u r c e : C a p I Q , i n t e r n a l s o u r c e s a n d c o m p a n y a n n o u n c e m e n t s . P r i c e d a s o f 1 / 2 3 / 2 0 1 9
N o t e : U s e q u a r t e r l y r e v e n u e t i m e s f o u r a s a p r o x y f o r A R R .
I n c l u d e s 5 2 p u b l i c c l o u d c o m p a n i e s i n t h e E M C L O U D .
S A A S T R A N N U A L 2 0 1 9
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
1/1/11
5/1/11
9/1/11
1/1/12
5/1/12
9/1/12
1/1/13
5/1/13
9/1/13
1/1/14
5/1/14
9/1/14
1/1/15
5/1/15
9/1/15
1/1/16
5/1/16
9/1/16
1/1/17
5/1/17
9/1/17
1/1/18
5/1/18
9/1/18
1/1/19
Peak – Mar 2014
~10x
Trough – May 2014
5.8x
Trough – Feb 2016
4.6x
Current
9.8x

39. HOW TO BUILD A
RESILIENT COMPANY
GROWTH
(ARR)
S A A S T R A N N U A L 2 0 1 9
RETENTION
IS YOUR
BEST FRIEND
IN THE
BANK
TARGETED SPEND
(“EFFICIENCY”)

40. S A A S T R A N N U A L 2 0 1 9
DEFINING EFFICIENCY
Net New
ARR
Net Burn
=
BVP Efficiency
Score
(<$30M ARR)

41. S A A S T R A N N U A L 2 0 1 9
BVP Nasdaq Emerging Cloud Index
EFFICIENT
BUSINESSES
ARE
REWARDED
IN ALL
MARKETS

42. S A A S T R A N N U A L 2 0 1 9
BVP EFFICIENCY SCORE
(<$30M ARR)
BEST
> 1.5x
GOOD BETTERNet New ARR
Net Burn
= < 0.5x 0.5x – 1.5x

43. S A A S T R A N N U A L 2 0 1 9
$12
$24
($2)
Ending ARR Net Burn
($ in M)
BEST
> 1.5x
$12M
(= $24 - $12)
$2M
6.0x
BVP Efficiency Score
GOOD BETTERNet New ARR
Net Burn
= < 0.5x 0.5x – 1.5x
=
BVP EFFICIENCY SCORE
(<$30M ARR)

44. S A A S T R A N N U A L 2 0 1 9
HOW TO CALCULATE YOUR GRIT SCORE
+++Growth
(ARR)
In The Bank
Targeted
Spend
(Efficiency)
Retention
Is Your Best
Friend
%AnnualNet
Retention
%YoYGrowth YearsofRunway NetNewARR/
NetBurn
0.5–1.5x80–150% 1–3Years50–200%
= GRIT
SCORE
3–4
4–6
>6
GOOD
BETTER
BEST

45. S A A S T R A N N U A L 2 0 1 9
EXAMPLE 1 – TWILIO (<$5M ARR)
+++
%AnnualNet
Retention
%YoYGrowth Years ofRunway NetNewARR/
NetBurn
0.5–1.5x80–150% 1–3Years50–200%
= GRIT
SCORE
BEST
1.5
(1.5xEfficiency)
2
(2Years)
3
(300%+Growth)
1.6
(160%Retention)
8.1
G I TR
+++ =

46. S A A S T R A N N U A L 2 0 1 9
EXAMPLE 1 – SERVICETITAN (<$5M ARR)
+++
%AnnualNet
Retention
%YoYGrowth Years ofRunway NetNewARR/
NetBurn
0.5–1.5x80–150% 1–3Years50–200%
= GRIT
SCORE
BEST
3.4
(3.4xEfficiency)
2
(2Years)
2
(200%+Growth)
0.9
(90%Retention)
8.3
G I TR
+++ =

48. 2019 PREDICTIONS

49. #1 ROBOTS TO THE RESCUE
AGRICULTURE
ACCOUNTING
CUSTOMER SUPPORT
MARKETING
AUDIT
FRAUD
SALES
HEALTHCARE
S A A S T R A N N U A L 2 0 1 9

50. #2 PRODUCT HAS PURSE STRINGS
$PRODUCT
SALES
SERVICES SUPPORT
MARKETING
S A A S T R A N N U A L 2 0 1 9

51. #3 OPENSOURCE MAKES MONEY
BiggestIPOEver
DeepBenchofStrong
Privates
LargestM&As
S A A S T R A N N U A L 2 0 1 9

52. #4 DEEPER VERTICALIZATION OF MOBILE
VERTICALSOFTWARE
CONSTRUCTION FIELD SERVICES RETAIL SALES
EDUCATIONWORKFORCE MGMT SAFETY/COMPLIANCE
FLEET TRANSPORTATION REAL ESTATE RECRUITING
S A A S T R A N N U A L 2 0 1 9

53. #5 LOW CODE/NO CODE
Developer BusinessAppsEasy
Automation

54. BESSEMER’S 5
PREDICTIONS
FOR 2019
1 Robots to the rescue
Product has purse strings2
Opensource makes money3
Deeper verticalization of mobile4
Low code/no code5

55. CLOUD REIGNS
$1 TRILLION

57. Thank You
www.bvp.com/cloud