GP.Bullhound - computersweden.event.idg.se · * Tracxn, Enterprise Collaboration Software Report, November 2016. 20 Confidential 6 International Labor Arbitrage Flourishes Companies

GP.BullhoundDealmakers in Technology

CLOUD CONFESSIONS BUSINESS EDITION

Oskar Herdland, Director ECM

2018-04-17

Confidential

2

GP Bullhound introduction

Market update

2018 tech predictions

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3

4 Global Software Market Perspectives

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510+Successful transactions

8,500+In contact with

GP Bullhound team annually

1,000+VC / PE contacts

60+Dedicated tech bankers

9Offices

1,500+Strategic buyer contacts

300+Events, keynotes &

Research reports

19Years since inception

Our missionTo advise the most passionate

technology entrepreneurs

5

Marquee transactions

SEENE

SNAPCHAT

Sold to

Undisclosed

RIGHTWARE

THUNDERSOFT

Sold to

€64 million

PRODIGY FINANCE

INDEX VENTURES, BALDERTON, ALPHACODE, DEUTSCHE BANK

Expansion raise

$240 million

OLSON

ICF INTERNATIONAL

Sold to

$295 million

SEQUENCE

SALESFORCE

Sold to

Undisclosed

ESSENCE

WPP

Sold to

Undisclosed

INNOGAMES

MODERN TIMES GROUP

Sale of equity stake

€260m valuation

PARADIGMA

INDRA

Sold to

Undisclosed

AUTOTRADER SA

OLX/NASPERS

Sold to

Undisclosed

ICOMERA

ENGIE INEO

Sold to

Undisclosed

ANSIRA

ADVENT INTERNATIONAL

Acquired by

Undisclosed

13TH LAB

FACEBOOK

Undisclosed

Sold to

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Advising the innovators

DIGITAL MEDIA

HARDWARE, SYSTEMS, SEMICONDUCTORS

of our Digital World

INTERNET, E-COMMERCE

SOFTWARE

Selected Investments

BELIEVE DIGITAL

SPOTIFY KLARNAQUIXEL

AVITO

LEOVEGAS

IPO (13.4x)

FISHBRAIN WALLAPOP

Sold to Accenture (4.6x)

MATHEM 13TH LAB

Sold to Facebook (2.0x)Sold to Bestseller (2.4x)

FJORD

Sold to Naspers (18.6x)

TIPTAPP

Confidential

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Market update


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2

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Confidential

1 000

2 000

3 000

4 000

5 000

6 000

Cumulative equity returnsRebased to January 2004

Source: CapitalIQ

Note: Data from CapitalIQ as of 10 April 2018

Index

+239%

+354%

FAANG

S&P 500

Nasdaq Composite

+4,841%

10

Confidential

Founder-led companies outperforming the marketRebased to January 2004

Source: CapitalIQ

Note: Data from CapitalIQ as of 10 April 2018. Founder-led companies include Facebook, Amazon, Apple, Netflix and Google. Not founder-led companies proxied using S&P 500 index

IndexFounder-led

Not founder-led

1 000

2 000

3 000

4 000

5 000

6 000

+4,841%

+239%

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Confidential

51,0

25,5

20,6

16,0

12,0 11,0 10,0 10,0 9,0

6,0 5,2 5,0 4,5 4,1 4,0 3,5 3,5 3,3 3,0 3,0

Nearly all unicorns are founder-ledTop 20 US venture-backed private companies

Source: Wall Street Journal (11 November 2015)

Valuation, $bn Founder-led

Not founder-led

Confidential

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Market update


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Confidential

GP Bullhound’s 2018 Predictions

An Uneasy Future for Politics and Technology1

Cyber Security Exposure and Adoption2

Mobile Trumps TV in China3

Translation Technology Takes Hold4

Over and Out Email5

International Labor Arbitrage Flourishes6

The Unlikely Comeback of the Software Suite7

Industry 4.08

Regulators Rule on Boom and Bust of Initial Coin Offerings9

Augmented Reality Adapts for Early Adoption10


15

Confidential


Increasingly cyber attacks are affecting the end user/consumer

» Uber, Equifax, Gmail…

IoT has led to an explosion in the number of connected devices

» Consumers and households have never been as connected, and exposed, as today

» Nearly 1/5 American households contain 10 or more internet connected devices

» The median household contains 5 such devices

Awareness has increased, but knowledge of how to protect is still low

» 75%+ of consumers are concerned about security, privacy, or websites tracking them

» Few consumers are educated on how to limit their exposure to these kinds of incidents

We will see a large increase in the number of households and individuals

adopting consumer cyber security software

» Home network security software, fraud protection and device security are set to benefit

Over and Out Email5

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Confidential

Over and Out Email5

2018 will represent the year that use of email will cease to grow and begin to

decline in the US

» Growth in email usage is projected to slow to 1.7% in the US in 2018

Companies increasingly shifting to enterprise communications tools

» Slack, Facebook, Google and Microsoft all have offerings in the market

» Amazon rumored to be interested in entering enterprise productivity/communication

Slack is clear market leader

» 6 million DAUs and 50K business customers

» 43% of the Fortune 100 using Slack

Rise of project management platforms further eroding email’s prevalence

» Companies providing tools to streamline processes and remove ineffective uses of internal

and external email

» Mobile workforce embracing enterprise messaging platforms

Email marketing is still a large proportion of sent emails

» Average email monthly send rates dropped from 9.8 to 8.1

» Other marketing tools starting to overtake email in effectiveness


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Confidential


The cost of centralizing startups in established tech hubs is becoming unsustainable for

many startups

» The average one bedroom apartment in San Francisco is $3,600 per month vs $2,600 in NYC

» The average salary for a software engineer in Silicon Valley is $134k vs $71k in the UK

The advancement of cloud collaboration tools has made distributed organizations

possible

» Communication tools (e.g. video and chat) have decreased the need for in person meetings

» The increase in number of rounds and total funding for enterprise collaboration software has fueled innovation

252 249431

807 641

895

1880

10801180

68 6983

98

138

168

141

133

102

0

60

120

180

0

500

1000

1500

2000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Funding Amount ($m) Number of rounds

Number of rounds and total funding in global enterprise collaboration software market*

* Tracxn, Enterprise Collaboration Software Report, November 2016

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Confidential


Companies now beginning to distribute their workforces to lower cost geographies

» Global trend impacting companies in the US and Europe, most notably

» Most common to locate technical teams in lower cost countries/cities

Key benefits

» Companies can significantly lower salary and operating costs

» Lower competition, higher employee retention and employee standard of living

Potential drawbacks

» Internal collaboration more challenging with distributed teams

» Complex internal workforce structures potential negatives for buyers and investors

» Technology consolidators often prefer centralized technical / engineering teams

Selected examples


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Confidential

18.5%projected CAGR*

$200bncloud software

revenue in 2021*

$85bncloud software

revenue in 2016*

* IDC Market Analysis Perspective: Worldwide SaaS and Cloud Software, 2017


The growth in adoption of cloud-based software has cluttered the

market for enterprise solutions

» Founding a cloud software company is easier than ever in the current market

» The average medium size enterprise has a vendor list of over 100 applications

» Decision makers are beginning to realize the lack of visibility they have into the utilization and expense of these vendors

Enterprise customers are reverting back to suite solutions

» The promise of the best of breed approach is proving to be unrealizable and costly

» Unintended complexity from managing a large vendor lists is muddling the overall IT strategy

Two particular sectors where we are seeing a movement to suites are

HR and marketing software

» The suites in these markets require less integration and the procurement is much more transparent

Confidential

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Market update


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3


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Confidential

Software consolidators are hyper focused on “growth acquisitions”

– SaaS companies with as little as $5 million of ARR have attracted such interest when growing north of 100%

– Acquirers are not evaluating build vs. buy as often in these scenarios

– Targets are being integrated, but left alone to continue momentum and growth

Strategic M&A processes have been catalyzed through “market checks” in parallel to companies’ investment processes

– Companies are weighing the advantages of exiting prior to their next financing as opposed to further dilution and time horizon

– Investor interest and term sheets can often drive strategics to act

– Companies exiting to strategics or PE buyers in lieu of raising fresh capital and continued standalone growth

Despite the initial tailwinds for a robust IPO market in 2018, volatility could threaten the IPO market in the near-term

– Over the past year, technology listings have returned an average of 28 percent, more than triple the return of all other IPOs. The next name

scheduled to join this elite class is Zuora.

– Market volatility spiked dramatically in early February as the Dow had one of its biggest point losses in recent times

– IPOs price above initial guidance and/or last privately marked valuations

Dropbox is a marquee software IPO – fastest SaaS company to $1B in revenue – 9x FTM rev

– Prolific IPO – 500m user over 180 countries, just 11m are paying customers – initial offering $18-20, IPO at $21, now $31 +48%

– Dropbox is primarily a consumer-focused SaaS business with much different metrics than most enterprise SaaS companies

– Dropbox’s net revenue retention of 100% is low for a SaaS company; land & expand efforts may not be working as well as others

Zscaler IPO – Cloud security, Security as a Service +106% surge on first IPO day to $33 ($16) - $4bn market cap. 16x

Zuora IPO – subscriptions based ERP platform - $1.2bn IPO valuation – upped price 20% $11-13 ($9-11) – 5x

Q1 SaaS Market Highlights

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Confidential

Large established SaaS companies are focusing on shifting to PaaS for their customers

– Customers want to be able to customize their own applications, add new services and shape their product. They can also integrate new

features and functionalities that are prohibitive to develop on their own, for example AI features

– Salesforce is the best example of a SaaS company shifting to PaaS, with their Force.com platform spawning multiple innovative and

successful companies leveraging their technology

» Financial Force – by being native on Force.com they are able to build cloud ERP apps on the largest customer success platform, making

teams more nimble, the services better, and the cost of synchronizing transactions lower

– Other companies focusing on platform offerings are Google, Microsoft, Oracle, SAP and Workday

Customer acquisition cost for SaaS companies has increased almost 65% over the past 5 years lowering margin

expectations for software companies, and making optimization of sales strategies more difficult

– Competition among SaaS vendors has made the cost of acquiring customers increase quite significantly, particularly larger enterprise

solutions

– While competition is responsible for driving up prices, another factor that inevitably affects SaaS companies of scale is a shrinking number of

sales channels to tap

» As early sales channels become saturated, converting clients from this source becomes increasingly difficult and expensive

» Sales channels further down the continuum usually have a marginally higher cost. Channel sales is the exception, having an existing

customer to sell to or through is much cheaper than a new sale and the upfront friction that comes with it

The newly signed tax bill in the US will lead to repatriation of profits, creating an extremely favorable M&A environment

for large technology & software consolidators

– Apple could bring back cash to the order of $252B, Cisco $65B and Google $55B – the possibilities are numerous, with multiple software

companies at large public valuations, and many more with significant value that could contribute scale to the largest technology acquirers

» E.g. Apple / Tesla, Apple / Netflix, Microsoft / Citrix, Google / Salesforce

Our Views on Current Trends in Software

Source: Redpoint Ventures, Capital IQ

26

Confidential

18,3

14,5

13,2

12,6

9,9

7,3

6,1

5,9

5,6

5,4

4,9

4,5

4,4

4,3

4,2

4,1

4,0

Salesforce

ServiceNow

Workday

Square

j2 Global

Splunk

Atlassian

Veeva

Ultimate Software

LogMeIn

Paycom

athenahealth

Proofpoint

RingCentral

Zendesk

2U

RealPage

HubSpot

MuleSoft

New Relic

GP Bullhound Selected SaaS Index Market Valuations

Source(s): Capital IQ as of 02/28/2018

Note: Includes the 20 largest companies by market cap from the GP Bullhound SaaS index, constituents can be found in Appendix A

(Market Cap Values in $ in billions)

84.0

28.1

26.6

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Confidential

3,0x

4,0x

5,0x

6,0x

7,0x

8,0x

9,0x

10,0x

11,0x

12,0x

13,0x

14,0x

GPB SaaS Index - TEV/Total Revenues GPB SaaS Index - TEV/Forward Total Revenue

Analysis of GP Bullhound SaaS Index ValuationsRevenue Multiple Trends – Last Five Years

Source(s): Capital IQ as of 2/28/2018

Note: GP Bullhound SaaS Index constituents can be found in Appendix A

Mean: 8.5x

Mean: 6.8x

As of Feb 28: 8.7x

As of Feb 28: 7.4x

Public market bubble? Current SaaS valuations are

in line with the mean of the last five year

Confidential

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Key SaaS MetricsDefinitions & Calculations

Metric Definition Calculation

Normalized measurement of recurring revenue, most frequently

measured with a constant value in each month of the

subscription periodMRR

All S&M expenses for new customers. Sometimes excludes people

management S&M costsCAC =

𝑆&𝑀

# 𝑜𝑓 𝑛𝑒𝑤 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠

Customer Acquisition Cost (CAC)

Amount of profit a customer is calculated to deliver to the

company over the lifetime of the customerCLV =

𝐴𝑅𝑃𝑈 ∗ 𝐺𝑀

𝐶ℎ𝑢𝑟𝑛 𝑟𝑎𝑡𝑒

Customer Lifetime Value (CLV)

The number of months a company requires to payback its cost of

customer acquisitionPayback Period =

𝐶𝐴𝐶

𝐴𝑅𝑃𝐴 ∗ 𝐺𝑀Payback Period

Churn (Gross & Net)

Gross Churn is the number of customers you lose in a given period

or cohort regardless of account expansion or growth

Net Churn is the number of customers gained or lost in a given

period or cohort after taking into consideration new, reactivated,

or expanded accounts Net Churn =

(𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑙𝑜𝑠𝑡𝑜𝑣𝑒𝑟 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑 − 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑔𝑎𝑖𝑛𝑒𝑑

𝑜𝑣𝑒𝑟 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑)𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑎𝑡

𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑

Gross Churn = 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑙𝑜𝑠𝑡 𝑜𝑣𝑒𝑟 𝑡𝑖𝑚𝑒 𝑝𝑒𝑟𝑖𝑜𝑑

𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑎𝑡 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑜𝑓 𝑡𝑖𝑚𝑒 𝑝𝑒𝑖𝑟𝑜𝑑

MRR= # 𝑜𝑓 𝑝𝑎𝑦𝑖𝑛𝑔 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 ∗ 𝐴𝑅𝑃𝐴/𝑚𝑜𝑛𝑡ℎ

Confidential

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Key SaaS Metrics (Cont’d)

• Monthly Recurring Revenues (MRR), Annual Recurring Revenue (ARR), Annual Run Rate Revenue (ARRR) are the key

metrics that investors will focus on

– Note: ARRR = ARR + Non-recurring revenue items

– Also important to understand, the % on-demand SaaS vs. traditional license, and the mix between software and

services

• Important to show continued growth in top line revenue (both reported and for the above metrics)

MRR / ARR / ARRR

• Customer Acquisition Cost (CAC) payback period is typically stated in months. Represents the time taken to fully pay

back sales and marketing investments

• Growth is the key target for SaaS companies, but sales and marketing investments should ultimately be profitable. CAC

payback periods:

– For SMEs, CAC payback period should be 6-12 months

– For Enterprise Customers, CAC payback period should be 9-15 months

– A CAC payback period of >24months should be a cause for concern

• Customer Lifetime Value = NPV of recurring gross profit of a customer less the initial cost of customer acquisition

• For SMEs, CLV should be between 3 & 4 years

– For Enterprise Customers, CLV should be between 5 & 7 years

CAC vs. CLV

• Logo Churn: Churn of absolute number of customers. Top companies have a Logo Churn of <7%

• MRR Churn: Churn of customer MRR that has been lost over given period of time. Top companies have a MRR Churn of

<5%, including upgrades/customer expansion, churn is ideally negative

• MRR Renewal: Total MRR of renewed customers/Total MRR of existing customers at year beginning. Top companies

have a MRR Renewal percentage of 105-110% due to upsells to its installed base

• Net Revenue Retention:

– Key metric for performance of SaaS business

– >100% upsells more than make up for churn

– ARR as a Percentage of Upsells: 15%+

Churn & Renewal Rates

• Growth is of paramount importance, with excess cash being used to fuel growth

• Important, therefore, to understand the cash burn in the business and planning for capital efficient hyper-growth

Free Cash Flow /

Burn Rate

Source(s): GP Bullhound analysis

Investors focus on key SaaS metrics, long-term business model viability and valuations

Events &Speaking

Offices

Awards

Latestreports

• GP Bullhound Summit

• Investor Allstars

• Northern Tech Awards

• Mobile World Congress

• SLUSH

• South Summit

• Game Developers Conference

• WebSummit

• CNN

• CNBC

• BBC

• Bloomberg

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LONDONSAN

FRANCISCOSTOCKHOLM BERLIN MANCHESTER PARIS HONG KONG MADRID

GLOBAL SOFTWARE

MARKET PERSPECTIVES

FINTECHANYTHING BUT ALTERNATIVE

ASIAN HORIZONS

EUROPE’S TITANS OF TECH

SPANISH TECH

SPOTIFY UPDATE OCTOBER 2017

TECHNOLOGY PREDICTIONS 2018

NEW YORK

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Documents

GP.Bullhound - computersweden.event.idg.se · * Tracxn, Enterprise Collaboration Software Report, November 2016. 20 Confidential 6 International Labor Arbitrage Flourishes Companies