Byron Deeter, Partner, and Kristina Shen, Vice President present the Bessemer Venture Partners: The State of the Cloud, 2017-2018 Edition. AI and voice are on the rise, NPS is still king, and diversity is even more important than you realize.

2. STATE OF THE
CLOUD REPORT
2017Byron Deeter & Kristina Shen
w w w . b v p . c o m / c l o u d
Special Thanks to Anna Khan

3. 2016
WOWZA
WHAT AYEAR

4. 4
Source: Uber

5. 5
Source: New York Stock Exchange

6. 6
Source: Make A GIF

7. 7
Source: Dean DeLisle, Blog Post

8. Source: 43 companies in BVP Cloud Index as of 02/01/2017. CapIQ
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
50%
60%
70%
80%
90%
100%
110%
120%
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
BVP Index Nasdaq S&P Dow Jones

9. BVP Cloud Index (2/12/2016-2/3/2017)
43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @
02/03/2017
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ
...BUT THE MARKET COMPLETELY REBOUNDED
IN 2H 2016
BVP Cloud Index (1/1/2016 – 2/12/2016)
43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 |
@ 02/03/2017
50%
60%
70%
80%
90%
100%
110%
120%
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
BVP Index Nasdaq S&P Dow Jones
50%
60%
70%
80%
90%
100%
110%
120%
BVP Index Nasdaq S&P Dow Jones

10. BVP Cloud Index
43 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 02/03/2017
JUST A SMALL BUMP IN A CRAZY RIDE UP!
50%
100%
150%
200%
250%
300%
350%
1/1/2011
3/1/2011
5/1/2011
7/1/2011
9/1/2011
11/1/2011
1/1/2012
3/1/2012
5/1/2012
7/1/2012
9/1/2012
11/1/2012
1/1/2013
3/1/2013
5/1/2013
7/1/2013
9/1/2013
11/1/2013
1/1/2014
3/1/2014
5/1/2014
7/1/2014
9/1/2014
11/1/2014
1/1/2015
3/1/2015
5/1/2015
7/1/2015
9/1/2015
11/1/2015
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
BVP Index Nasdaq S&P Dow Jones
Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ

11. 0
5
10
15
20
25
30
35
40
45
50
2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of tech
IPOs on U.S.
Stock exchanges
Source: Bloomberg
*Tech IPOs less than $5MM are not included | *Listings for this year are through Nov 15
FEWEST TECH IPOS SINCE FINANCIAL CRISIS

12. company 2016-2017
$2.9B
$1.4B
$1.3B
$592M
$492M
company2015
$6.2B
$4.3B
$2.3B
$989M
$826M
$694M
$331M
$6.7B$15.6BTotal
Source: CapIQ
Total
TOTAL CLOUD
IPOS IN 2015-
2017

13. company 2016-2017
$2.9B
$1.4B
$1.3B
$592M
$492M
company2015
$6.2B
$4.3B
$2.3B
$989M
$826M
$694M
$331M
$6.7B$15.6BTotal
5 OF 12 CLOUD
IPOS ARE
BVP-FUNDED
Source: CapIQ
Total

14. M&A From 2009 to Today
4X MORE M&A 2016 THAN ANY OTHER YEAR
$1,676 $2,279
$5,627
$13,708
$8,889
$14,921
$17,655
$60,713
$3,700
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: CapIQ

15. PUBLIC CLOUD COMPANIES 2009 – 2017
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.
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
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
>$300BN Market Cap
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
Coupa Software
Broadsoft
SPS Commerce
Constant Contact
Mindbody
Eloqua
$1.3
$1.3
$1.2
$1.1
$1.0
$1.0

16. 40% OF MARKET CAPACQUIRED
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.
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
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
>$300BN Market Cap
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
Coupa Software
Broadsoft
SPS Commerce
Constant Contact
Mindbody
Eloqua
$1.3
$1.3
$1.2
$1.1
$1.0
$1.0

17. MORE THAN
MEETS THE EYE
$400B Market Cap
Creation in Just the
Top 200 Companies
$180BN
Public
$129BN
Major Acquisitions
$104BN
Top 100 Private
Cloud Companies
~$400B
MARKET
CAPTop 200
companies
1,000s of Private
Cloud Companies
Source: SLWA Blog

19. HUGE BACKLOG OF PRIVATE COMPANIES
>$100BN MARKET CAP IN CLOUD 100

20. HOW DO I
SCALE?
HOW MUCH
SHOULD I
BURN?
HOW FAST
SHOULD I BE
GROWING?
KEY QUESTIONS FROM TOP PRIVATE
CEOS

21. HOW FAST
SHOULD I
BE
GROWING?

22. To Kristina Shen

23. THE NEW
GROWTH
STANDARD?
8 YEARS TO $1B
Dropbox is the Fastest SaaS
Company to $1 Billion Revenue Run
Rate

24. Years from $1M to $10M ARR
HOW DO THE TOP CLOUD COMPANIES PERFORM?
$0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs
ARR(in$M)
Source: CapIQ, internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR.

25. $0
$1
$2
$3
$4
$5
$6
$7
$8
$9
$10
0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs
ARR(in$M)
Years from $1M to $10M ARR
HOW DO THE TOP CLOUD COMPANIES PERFORM?
Source: CapIQ internal sources and company announcements..
Note: Use quarterly revenue times four as a proxy for ARR.

26. $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
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.

27. YEARS FROM $1M TO $100M ARR
$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
5.3 yrs
Top 25%
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.
Public Cloud Companies
7.3 yrs
Median
10.6 yrs
Bottom 25%

28. From $1mm ARR
BVP GROWTH BENCHMARK
BEST
GOOD
BETTER
Yearsto$10MARR
Yearsto$100MARR
3Years
7Years
4Years
10Years
2Years
5Years

29. HOW MUCH
SHOULD I
BURN?

30. DEFINING THE EFFICIENCY SCORE
%
Annual
Revenue
Growth
Rule
of 40 +=
% Profit
Margins

31. DEFINING THE EFFICIENCY SCORE
%
Annual
Revenue
Growth
Rule
of 40 +=
% Profit
Margins
* Burn defined as FCF for this analysis
%
Annual
CARR
Growth
Efficiency
Score += % Burn*

32. SHOPIFY2013
GROWTH-DRIVEN
EFFICIENCY SCORE
Power
112% -4% 108%
% Burn*% Revenue
Growth
=
VEEVA2013
FCF-DRIVEN
EFFICIENCY SCORE
Power
62% 19%
% Burn*% Revenue
Growth
+ =
MULTIPLE
SUCCESSFUL
MODELS OF
EFFICIENT
GROWTH
81%
+
* Burn defined as FCF for this analysis

33. DIFFERENT EFFICIENCY SCORES AT DIFFERENT
STAGES
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.
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
73%
TIME
56% 53%
45%
38% 35% 32%

34. THE BVP EFFICIENCY RULE (>$30M ARR)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
EXPANSION
($30-60M ARR)
%CARRGrowth+%FCFMargin
70%
50%
30%
IPO
(~$100M ARR)
PUBLIC
($150M+ ARR)

35. 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
%Rev.Growth+%FCFMargin
70%
50%
30%
EXPANSION
($30-60M ARR)
IPO
($60-100M ARR)
PUBLIC
($100M+ ARR)
?
THE BVP EFFICIENCY RULE

36. THE BVP EFFICIENCY RULE (<$30M ARR)
BVP Efficiency Score
Net New
ARR
Net Cash
Burn
>
1
For Example:
$10
$25
($10)
Ending ARR Net Burn
($ in M)
$15M
(= $25- $10)
$10M
= 1.5
BVP Efficiency
Score
2016 2017

37. HOW DO I
SCALE?

38. CUSTOMER ACQUISITION COST
CAC PAYBACK
CAC PAYBACK
PERIOD
(months)
TOTAL S&M COSTS
LAST QUARTER
= NEW CMRR ADDED LAST
QUARTER
X
% GROSS MARGIN

39. CAC COCKTAIL
CAC
COCKTAIL
FORMULA SALES
# of AEs
Quota
Inside sales
Field /enterprise sales
Ramp time
Inside sales
Field sales
Attainment rate
$400k-$800k
$1-1.5m
1-3mo
6-9mo
70-90%
LEAD/OPPORTUNITY
GENERATION
# of SDRs
Opportunities/SDR/month
Close rate
Marketing Spend
(% of Total S&M)
Inside/field sales model
Freemium/internet sales
15-25
15-30%
25-33%
33-67%

40. Find the model that works for you
UNDERSTANDING YOUR SALES MODEL
SMB EnterpriseMidmarket
12 Mos 18-24 Mos3-6 Mos
AVG ACV
CHURN /
UPSELL
CAC
PAYBACK
$12 - $50K<$12k $50K+
1% Monthly<3% Monthly
<1% Monthly,
Upsell

41. MULTIPLE WAYS TO BE SUCCESSFUL:
UPSELL MAJOR DRIVER
12 Mo CAC Payback, 100% Retention 24 Mo CAC Payback, 115% Retention
Note: Assumed 80% gross margin, and no other expenses.
Revenue
Cash Flows (Gross Profit – S&M)
S&M Costs
Year 1 Year 2 Year 3 Year 4Year 1 Year 2 Year 3 Year 4
$10
$8
$0
$10 $10 $10
$8
$16
$24
$10
$8
$16
$12
$1
$13
$12
$15
$24Result in same
cash flow after 4
years

42. 2017 PREDICTIONS

43. ADVANCES IN AI ARE AWESOME

44. ...BUT STILL
DEPENDENT
ON HUMANS.

45. THE YEAR OF HUMAN ASSISTED AI
SECURITY
Estimated 1mm unfilled
cybersecurity jobs
available
SALES & MARKETINGCUSTOMER SUPPORT
50% of customer service
agents failed to answer a
consumers questions
HEALTHCARE
#1
$12.8B per year on sales
acceleration technology
40% of healthcare
providers are expanding
IT budgets

46. Mapping
Payments
Communication
(Messaging/Voice)
Email
SSO
Customer
Engagement
Storage
Enterprise Search
Files
Background Check
Collaboration
IaaS
User Management
Identification
Social
AI
Banking
Location
HealthcareSecurity/Fraud
Test/Monitor
APIS WILL SERVE AS THE BACKBONE FOR A
MAJORITY OF SOFTWARE INFRASTRUCTURE#2

47. COST OPTIMIZE
YOUR PUBLIC
CLOUD
INFRASTRUCTURE
AS YOU GROW
ELECTRONIC CALCULATOR
4
7
GT
7
5
8
+ - MRC M- M+
-6 ×
9 %
BASE INSTANCE
+ STORAGE COST
+ PROVISIONED IOPS FOR
DATABASES
+ LOCAL SSD
+10% FOR PREMIUM SUPPORT
+10% FOR DEDICATED
INSTANCES OR HOSTS
=
TOO EXPENSIVE
ARCHITECT
FOR
SUCCESS IN
AN INFINITE
COMPUTE
WORLD
#3

48. FIELD SERVICES
VERTICALHORIZONTAL
CONSTRUCTION RETAIL SALES
EDUCATIONHEALTHCARE SAFETY / COMPLIANCE
AGRICULTUREEVENTS SMBS
COMMUNICATION
PAPER REPLACEMENT
(FORMS/INVOICING)
MOBILE
UNLOCKS NON-
DESK WORKER
PRODUCTIVITY
#4

49. NPS EVERYTHING
#5
CUSTOMERS EMPLOYEES

50. U.S. Labor Force by
Generation, 1995-2015
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.
MILLENNIALS ARE A MAJORITY OF THE US
WORKFORCE
think the performance review
process is flawed69%
“feel in the dark” about how their
managers think they are
performing
74%
expect to stay in job for less
than
3 years
91%
ranked personal development
as #1 reason for accepting a
job
65%
In millions
Boomer
s
Gen
Xers
Silents
Millennial
s

51. THE
SCREENLESS
SOFTWARE
MOVEMENT
#6

52. 7K
Alexa/
Echo has
skills
THE MARKET
HAS FALLEN IN
LOVE WITH
VOICE
8.2MM
Alexa/Echo‘s sold
since late 2014
intro
Source: Consumer Intelligence Research Partners

53. 11.30%
9.50%
18.70% 19.00%
41.60%
When did you first start using
voice search/commands?
Source: MindMeld, SEL Blog by Greg Sterling 2016
Within the last 6 monthsBetween 6 months and 1 year agoBetween 1 to 2 years agoBetween 2 to 3 years agoMore than 3 years ago
20%…of queries on the
Google mobile app and
android devices are voice
searches
Sundar Pichai
Google I/O Keynote
May 2016
VOICE

54. DIVERSE TEAMS WIN#7
of companies funded by American
VCs had “one core foreign born
team member such as CEO or
CTO.”
75%
of U.S. Billion-Dollar startups
were founded by immigrant.s
51%
of top 10 companies in silicon
valley by NASDAQ market
cap are run by women.
20%
profitability increase when
adding 30% more female
talent to a company.
15%

55. BVP’S 7 PREDICTIONS FOR 2017
1
APIs will serve as the backbone for
a majority of software infrastructure
The screenless software movement
Mobile unlocks non-desk worker productivity
NPS everything
Architect for infinite scale without
infinite spend
The year of human assisted AI
Diverse teams win
2
3
4
5
6
7