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State of the Cloud Report
2016Byron Deeter & Kristina Shen
www.bvp.com/cloud
2
3
DENIAL
"Wealreadyinvestedveryheavilyintoourinfrastructure.Wearenotbehindonthat.We'vebeendoingitallalong.Wedon'tneedtodoanythingunusual.”
BillMcDermottCEO,SAP
4
"MaybeI'manidiot,butIhavenoideawhatanyoneistalkingabout.Whatisit?It'scompletegibberish.It'sinsane.Whenisthisidiocygoingtostop?”
LarryEllisonChairman,Oracle
ANGER
5
BARGAINING
“Thisdealisallaboutbringingtogethertheprofessionalcloudandprofessionalnetwork.”
SatyaNadellaCEO,MicrosoftontheLinkedInAcquisition
6
DEPRESSION
“Twoyearsago,welaidoutourstrategicplantotransformIBM…Aspartofthis,wedivestedcommoditizingbusinessesthatprovideddiminishingvaluetoourclientsandcontributedrevenuebutlittleornoprofit.”
VirginiaM.RomettyCEO,IBM
7
24% OF THE TOTAL CLOUD MARKET CAP GOT ACQUIRED
IN THE LAST 12 MONTHS
ACCEPTANCE
AWS – BY THE NUMBERS
70%
>$12Billion
$2.5billion
YoYGrowth
ARRRunRate
OperatingIncomeRunRate
Source:PublicSECfilings
Worldwide spending on public cloud services was $70B worldwide in 2015, growing at a 19.4% CAGR, but still
only 5% of total IT spend.1
(1)Source:ForbesCloudRoundup2016http://www.forbes.com/sites/louiscolumbus/2016/03/13/roundup-of-cloud-computing-forecasts-and-market-estimates-2016/#21863f1e74b0
CLOUD MARKETS OUTPERFORMING NASDAQ BY 2X
10
0%
50%
100%
150%
200%
1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016
BVPCloudIndex NasdaqIndex S&PIndex DowJones
BVP Cloud Index42 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 08/24/2016
Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ.
WITH ALPHA COMES VOLATILITY
11
BVP Cloud Index42 Publicly Traded Cloud Companies Indexed as of Dec. 2015 | @ 08/24/2016
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
12/31/15
1/7/16
1/14/16
1/21/16
1/28/16
2/4/16
2/11/16
2/18/16
2/25/16
3/3/16
3/10/16
3/17/16
3/24/16
3/31/16
4/7/16
4/14/16
4/21/16
4/28/16
5/5/16
5/12/16
5/19/16
5/26/16
6/2/16
6/9/16
6/16/16
6/23/16
6/30/16
7/7/16
7/14/16
7/21/16
7/28/16
8/4/16
8/11/16
8/18/16
8/25/16
BVPCloudIndex NasdaqIndex S&PIndex DowJones
Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ.
Cutin½in1mo Full
reboundin6mos
BUT REVENUE MULTIPLES ARE BACK TO “NORMAL” LEVELS
12
NTM Multiples Over Time
4.9x
3.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016
BVPCloudIndex LegacySoftware
Peak- Jan20149.5x
Lowest– Feb20163.1x
HighM&AActivityBegins
Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ.
PRIVATE CLOUD MULTIPLES ARE TRADING AT A PREMIUM TO PUBLIC CLOUD MULTIPLES… BUT THEY ARE CONVERGING
13
NTM Multiples Over Time
Thepublic/privategapconverging
Average10-17x
4.9x3.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 1/1/16
11.2xasoftodayonaverage
Source: 42 companies in BVP Cloud Index as of 8/24/2016. CapIQ. Notes: In the last 6 months, the average ARR multiple paid was 11.2x; BVP Cloud Index multiple and Legacy software multiples are both NTM GAAP revenue.
PrivateCloudMultiples
ONLY 3 CLOUD IPOs IN THE LAST 12 MONTHSONLY 3 CLOUD IPOs IN THE LAST 12 MONTHSEarly
(Seed/Series A)Mid
(Series B/Series C and/or < $30mm Raise)Late
(Series D + and/or > $30mm Raise)Market Cap
(At the end of the 1st day)
$2.6BnTWLO 06/16
$5.7BnTEAM 12/15
$467MINST 11/15
$455MAPPF 06/15
$241MXTLY 06/15
$452MMB 06/15
$1.9BnSHOP 05/15
$2.7BnBOX 01/15
2016IPO
2015IPOs
e.VenturesInvestmentGroupof
SantaBarbara
www.bvp.com
Note:Includesinvestorswith>5%ownershippostIPOaccordingtoSECfilingsand/orleadersofafinancingroundaccordingtoCrunchbase.Includessecondaryroundsasindependentrounds.IfnoleadcalledoutonCrunchbase,all>5%shareholderspostIPOarecalledout.Marketcapitalizationcalculationsincludesharesoutstanding,restrictedstock, andusetreasurystockmethodologyonoptions.
ONLY 3 CLOUD IPOs IN THE LAST 12 MONTHSEarly
(Seed/Series A)Mid
(Series B/Series C and/or < $30mm Raise)Late
(Series D + and/or > $30mm Raise)Market Cap
(At the end of the 1st day)
$2.6BnTWLO 06/16
$5.7BnTEAM 12/15
$467MINST 11/15
$455MAPPF 06/15
$241MXTLY 06/15
$452MMB 06/15
$1.9BnSHOP 05/15
$2.7BnBOX 01/15
2016IPO
2015IPOs
e.VenturesInvestmentGroupof
SantaBarbara
www.bvp.com
Note:Includesinvestorswith>5%ownershippostIPOaccordingtoSECfilingsand/orleadersofafinancingroundaccordingtoCrunchbase.Includessecondaryroundsasindependentrounds.IfnoleadcalledoutonCrunchbase,all>5%shareholderspostIPOarecalledout.Marketcapitalizationcalculationsincludesharesoutstanding,restrictedstock, andusetreasurystockmethodologyonoptions.
BVP IS A PARTNER TO 5 OF 8 CLOUD IPOs 2015 -2016
CHEAP PUBLIC CLOUD MULTIPLES RESULTED IN $50.4B OF PUBLIC M&A IN JUST 12 MONTHS
16
Company Acquirer ValuationofAcquisition ValuationMultipleatTimeofAnnouncement
$1.6B 7.1x
$2.4B 7.0x
$26.2B 8.1x
$1.8B 7.5x
$9.3B 10.3x
$2.8B 10.5x
$532mm 3.2x
$663mm 6.5x
$4B 4.7x
$1.1B 2.6x
TOTAL $50.4B AVG:6.5x
SUMMARY OF LAST 12 MONTHS
17
Publiccloudmultiplesremaincheap
M&Awillcontinuebecauselegacyvendorshavetoreact
Organicgrowthofcloudbusinessesleadstoriseofcloudindex
CloudIPOmarketispoisedtoreopen
1
2
3
4
KEY TOPICS FOR TODAY
18
• StateoftheCloudIndustryinthelast12months
• BenchmarkingandBestPractices
• Predictions
5 C’S OF CLOUD FINANCERepresentative Cloud Business ($15mm ARR)
CARR% Fwd Growth
1
Good
Better
Best
50-100%
50%
100%+
CAC PAYBACK(Mos)
2
12 - 24
24
<12
CHURN (Monthly)
3
<1%
1-3%
Net negative
CLTV / CAC
4
3-5x
3x
5x+
CASH FLOW(New ARR/Mo Burn)
5
1x
<1x
>1x
www.bvp.com/cloud 19
[make left turn or right turn, high growth or high profitability]
HIGH GROWTH, PATH TO
PROFITABILITY
HIGH PROFITABILITY,
MODEST GROWTH
GROWTH REMAINS AN IMPORTANT METRIC…
0%
20%
40%
60%
80%
100%
120%
140%
160%
T-4 T-2 T+0 T+2 T+4 T+6 T+8 T+10 T+12
PreIPO PostIPO1Yr IPO 1Yr 2Yrs 3Yrs
TopQuartile 91% 61% 42% 36% 33%Median 72% 47% 35% 34% 24%BottomQuartile 42% 34% 26% 28% 22%
Source:SECfilings.BVPCloudIndexpubliccompanies.T=quarters 21
@ $10mm ARR
@ $100mm ARR
@ $300mm ARR
%YoYGrowth
300%
100%
30%
(Starting From Four Quarters Prior to IPO)
Public Cloud Company YoY Growth Best-In-Class Growth
…BUT IS NO LONGER THE STRONGEST METRIC
22
2U
Appfolio
Athenahealth
Atlassian
Bazaarvoice
Benefitfocus
Box
BroadSoftCastlight Health
CornerstoneOnDemand
Cvent
FleetmaticsGroup HubSpot
Instructure
IntraLinks
JiveSoftwareLifeLock
LivePerson
LogMeIn
MarinSoftware
Medidata Solutions
Mindbody
MobileIron
NewRelic
NetSuite
Proofpoint
Qualys
RealPage
RingCentral
SalesforceServiceNow
Shopify
SPSCommerce
TheUltimateSoftwareGroup
Veeva
Wix
Workday
Xactly
XeroZendesk
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
-10% 0% 10% 20% 30% 40% 50%
2017Reven
ueM
ultip
le
’16-’17RevenueGrowthSource:41companiesinBVPCloudIndex.CapIQNote:ExcludeTwilio asanoutlier.
Correlation(R2)=39%69%3yearsago
Revenue Growth vs Revenue Multiple
DEFINING THE EFFICIENCY SCORE
23
Rule of 40
= % Annual Revenue Growth + % Profit Margins
DEFINING THE EFFICIENCY SCORE
24
Rule of 40
= % Annual Revenue Growth + % Profit Margins
Efficiency Score
= % Annual CARR Growth + % FCF Margin
INVESTORS ARE NOW FOCUSED ON EFFICIENT GROWTH
Efficiency Score vs Revenue Multiple
25
2U
AppfolioAthenahealth
Atlassian
Bazaarvoice
Benefitfocus
Instructure BroadSoftCastlightHealth
CornerstoneOnDemand
Cvent
Fleetmatics Group
HubSpot
Box
IntraLinks
JiveSoftware
LifeLock
LivePerson
LogMeIn
MarinSoftware
MedidataSolutions
Mindbody
MobileIron
NewRelic
NetSuite
Proofpoint
Qualys
RealPageRingCentral
Salesforce
ServiceNowShopify
SPSCommerce
TheUltimateSoftwareGroup
Veeva
Wix
Workday
Xactly
XeroZendesk
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
-10% 0% 10% 20% 30% 40% 50% 60%
2017Reven
ueM
ultip
le
’16-’17RevenueGrowth+’17FCFSource:41companiesinBVPCloudIndex.CapIQNote:ExcludeTwilio asanoutlier.
Correlation(R2)=67%
+10% efficient growth results in +1.4x Rev Mult
EXAMPLE 1: SHOPIFYHIGH GROWTH + BREAKEVEN FCF
26
Efficiency Score 2013 Efficiency Score
108%
89%95%
79%
44%36%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
IPO- 3Y IPO- 2Y IPO- 1Y IPO IPO+1Y IPO+2Y
Efficiency FCFMargin RevenueGrowth
112%
-4%
108%
-20%
80%
180%
%RevenueGrowth %FCFMargin Power
$50M ($2)M2013Revenue 2013FCF
Source:CapiQNote:Efficiencyscoredefinedas%annualCARRGrowth+%FCFMargin
EXAMPLE 2: VEEVAMODEST GROWTH + HIGH FCF
27
Efficiency Score 2013 Efficiency Score
62%
19%
81%
0%
50%
100%
%RevenueGrowth %FCFMargin Power
$210M $39M2013Revenue 2013FCF
117%134%
81%
62%
45% 50%
0%
20%
40%
60%
80%
100%
120%
140%
160%
IPO- 3Y IPO- 2Y IPO- 1Y IPO IPO+1Y IPO+2Y
Efficiency FCFMargin RevenueGrowth
Source:CapiQNote:Efficiencyscoredefinedas%annualCARRGrowth+%FCFMargin
DIFFERENT STAGES REQUIRE EFFICIENCY SCORES
28
100%
73%
56% 53%45%
38% 35%
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
Time
%AnnualCARRGrowth
+%FCFMargin
73%
56%53%
45%38% 35% 32%
Source:42companiesintheBVPCloudIndex,CapiQNote:Averageefficiencyscoreofthe42publiccloudcompanies.Efficiencyscoredefinedas%annualCARRgrowth+%FCFmargin.
Efficiency Score of Public Cloud Companies @ IPO
THE BVP EFFICIENCY RULE – 70 – 50 – 30
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
IPO- 3Y IPO- 3Y IPO- 2Y IPO- 1Y IPO IPO+1Y IPO+2Y IPO+3Y
%CAR
RGrow
th+%FCFM
argin
EfficiencyScore=%AnnualCARRGrowth+%FCFMargin
70%
50%30%
EXPANSION($30-60MARR)
PREIPO($60-100MARR)
PUBLIC($100M+ARR)
THE BVP EFFICIENCY RULE – 70 – 50 – 30
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
IPO- 3Y IPO- 2Y IPO- 1Y IPO IPO+1Y IPO+2Y IPO+3Y
%CAR
RGrow
th+%FCFM
argin
70%50%
30%
EXPANSION($30-60MARR)
PREIPO($60-100MARR)
PUBLIC($100M+ARR)
?
EfficiencyScore=%AnnualCARRGrowth+%FCFMargin
THE BVP EFFICIENCY RULE – 70 – 50 – 30
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
IPO- 3Y IPO- 2Y IPO- 1Y IPO IPO+1Y IPO+2Y IPO+3Y
%CAR
RGrow
th+%FCFM
argin
70%50%
30%
EXPANSION($30-60MARR)
PREIPO($60-100MARR)
PUBLIC($100M+ARR)
MID($10-30MARR)
NetNewARR
NetCashBurn
>1
EARLY(<$10MARR)
CLTV
CAC>3
EfficiencyScore=%AnnualCARRGrowth+%FCFMargin
KEY TOPICS FOR TODAY
32
• StateoftheCloudIndustryinthelast12months
• BenchmarkingandBestPractices
• Predictions
2015 PREDICTION #1:INDUSTRY CLOUD ON THE RISE
33
2015 PREDICTION #1:INDUSTRY CLOUD ON THE RISE
34
$9.2B OF INDUSTRY CLOUD ACQUISITIONS & 2 IPOs
$4B
$2.4B
$663M
$1.6B
$532M
$661M(IPO)
35
$616M(IPO)
NotableFinancings
2015 PREDICTION #2:CYBERSECURITY, A HOT MARKET
36
2015 PREDICTION #2:CYBERSECURITY, A HOT MARKET
37
$2.1trillion
PREDICTION #2 - CYBERSECURITY, A HOT MARKET
Costofdatabreachesglobally,4xmorethan
20151
Source:(1)JuniperResearch,http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion(2) GartnerInc.http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
14$2.1trillion
PREDICTION #2 - CYBERSECURITY, A HOT MARKET
Costofdatabreachesglobally,4xmorethan
20151
OftheCloud100wereCybersecurityCompanies,
thelargestshare
Source:(1)JuniperResearch,http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion(2) GartnerInc.http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
14$2.1trillion
Costofdatabreachesglobally,4xmorethan
20151
$170Billion
OftheCloud100wereCybersecurityCompanies,
thelargestshare
WorldwideCybersecurityMarketby2020,upfrom
$75.4Bin20152
PREDICTION #2 - CYBERSECURITY, A HOT MARKET
Source:(1)JuniperResearch,http://www.juniperresearch.com/press/press-releases/cybercrime-cost-businesses-over-2trillion(2) GartnerInc.http://blogs.wsj.com/venturecapital/2016/02/17/the-daily-startup-increased-spending-in-cybersecurity-drives-funding-surge/
43
PREDICTION #3: THE DEVELOPER IS MORE IMPORTANT
2015 PREDICTION #3:DEVELOPERS ARE THE NEW KID ON THE BLOCK, AND HERE TO STAY
44
NOW THE COOL KID…
APIS TO ACCELERATE YOUR BUSINESS
Mapping
Payments
Communication(Messaging/Voice)
SSO
Customer Engagement
Storage
46
2015 PREDICTION #4:MORE M&A AHEAD
2015 PREDICTION #4:MORE M&A AHEAD
THE LEGACY PLAYERS ARE….
47
CORNERED ANIMALS…
50
ClassicInnovator’sDilemmaallowedcloud
entrantstothriveToolatetobuild
Facinganextinctionlevelevent
Can’taffordtobuyallofwhat’sneeded
‘NUFF SAID
$50.4B
50
‘NUFF SAID
$50.4B
2015 PREDICTION #5:MOBILE IS A GAME CHANGER FOR THE ENTERPRISE
53
2015 PREDICTION #5:MOBILE IS A GAME CHANGER FOR THE ENTERPRISE
54
PREDICTION #5: MOBILE IS A GAME CHANGER FOR THE ENTERPRISE
85%Americansbetween18-29
>50%Internetusageonmobilevsdesktop
80%Workforcearenon-deskworkers
~EVERYONEINENTERPRISEB2BNOWHASASMARTPHONE
INTERNETUSAGETIPPEDTOMOBILE
REACHESANUNTOUCHEDWORKFORCE
Source:PewResearchCenter,April,2015,“TheSmartphoneDifference”.Source:eMarketer 9/14(2008-2010),eMarketer 4/15(2011-2015).Note:OtherconnecteddevicesincludeOTTandgameconsoles.Mobileincludessmartphoneandtablet.Usageincludesbothhomeandwork.Ages18+;timespentwitheachmediumincludesalltimespentwiththatmedium,regardlessofmultitasking.KPCBInternettrends,2015
GlobalMobilePenetration1995- 2014
GLOBALPENETRATION
1–>73%
55
EARLY ENTERPRISE MOBILE USE CASES
Healthcare Education Safety/Compliance
Construction FieldServices RetailSales
Events Agriculture SMBs
VERT
ICAL
PaperReplacement(Forms/Invoicing)
Collaboration
HORIZO
NTA
L
www.bvp.com/cloud56
57
58
MESSAGING IS THE KILLER MOBILE EXPERIENCE
• 2.7MM DAUs
• 320 million minutes of active usage per weekday
• 800K paid seats weekly active user growth rate4
Source:(1)BusinessInsider.(2)Velocify.,(3)eWeek.(4)TechCrunch,asofApril2016. 59
• 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
2016 PREDICTION:SAAS 2.0 BEGINS TO DISRUPT SAAS 1.0
?
PREDICTION – SAAS 2.0 BEGINS TO DISRUPT SAAS 1.0HCM is the First Market
Phase0 Phase1 Phase2Phase1.561
2016 PREDICTION:USE OF DEEP LEARNING & AI IN ENTERPRISE
?
CONSUMER IS AHEAD, BUT ENTERPRISE WILL FOLLOW
Photo Recognition Voice Recognition Text Recognition
Text RecognitionVoice RecognitionPhoto Recognition
2016 PREDICTIONS, FROM “CONVENTIONAL WISDOM” TO EMERGING
EMERGING CONVENTIONALWISDOM
7 6 5 4 3 2 1
DeepLearning/
AIEnterpriseMobile SaaS2.0 Cybersecurity
PrivateM&A
DevelopersReign
IndustryCloud
State of the Cloud Report
2016Byron Deeter & Kristina Shen
www.bvp.com/cloud