BESSEMER’S 10 LAWS OF CLOUD COMPUTING BYRON DEETER www.bvp.com/cloud @bdeeter
Source: Flickr/Clemens Grün
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Source: Victor J. Blue/Getty Images
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Source: HBO/iStock
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Source: Blue Apron Blog
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Source: iStock
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Source: Flickr/Marco
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LAW 10: ONDEMAND EVERYTHING Source: Microsoft
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Source: Flickr/AJ LEON
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Source: Docusign
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Source: Shutterstock
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LAW 09: GROW (EFFICIENTLY) …OR DIE Source: PCWallart.com
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TOP TIER $10M ARR COMPANY SHOULD GROW 300% YOY Public Cloud Company YoY Growth
Best-In-Class Growth
(Starting From Four Quarters Prior to IPO)
% YoY Growth
160%
Pre IPO 1 Yr 91% 72% 42%
140%
Top Quartile Median Bottom Quartile
120%
IPO 61% 47% 34%
1 Yr 42% 35% 26%
Post IPO 2 Yrs 3 Yrs 36% 33% 34% 24% 28% 22%
@ $10mm ARR
300%
@ $100mm ARR
100%
@ $300mm ARR
30%
100%
80%
60%
40%
20%
0% T-4
T-2
T+0
T+2
T+4
T+6
T+8
T+10
Source: SEC fillings. BVP Cloud Index public companies. T = quarters
T+12
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FASTER GROWTH IS REWARDED – 10% GROWTH = +1.0X IN REVENUE MULTIPLE 45 Public Cloud Companies
10.0x
+10% growth results in +1.0x Rev Mult 9.0x Atlassian Corporation
2016 Revenue Multiple
8.0x
Workday The Ultimate Software Group
7.0x
ServiceNow Veeva
6.0x
Proofpoint
5.0x
Medidata Solutions
4.0x
Qualys LogMein
3.0x 2.0x 1.0x
RealPage
NetSuite
Salesforce
Cvent
LivePerson Jive Software
Instructure
Mobileiron
HubSpot
Demandware
Appfolio, Inc.
LinkedIn
Benefitfocus BroadSoft Constant Contact
Shopify
New Relic
Cornerstone OnDemand
Intralinks Bazaarvoice
Zendesk
Xero
Wix
Textura
y = 10.181x + 1.1297 R2 = 0.36068
Mindbody, Inc
Xactly
Castlight Health
Lifelock
Marin Software
0.0x 10%
20%
-1.0x Source: 45 companies in BVP Cloud Index. CapIQ
30%
40%
50%
60%
’15-’16 Revenue Growth www.bvp.com/cloud
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LAW 08: SALES EFFICIENCY IS YOUR OXYGEN Source: iStock
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Source: iStock
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CUSTOMER ACQUISITION COST - CAC PAYBACK
TOTAL SALES & MARKETING COSTS OF PRIOR QUARTER CAC PAYBACK PERIOD = (Months)
NEW CMRR ADDED IN PRIOR QUARTER X GROSS MARGIN % OF THE BUSINESS
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EFFICIENT CAC PAYBACK = MORE FOUNDER OWNERSHIP Resulting P&L for 3 companies growing at 50% new bookings with different CAC paybacks 1 Yr CAC Payback Total cash burn: $0M
1.5 Yr CAC Payback
2 Yr CAC Payback
Total cash burn: $53M
Total cash burn: $106M
New Bookings S&M Costs Cash Flows (Gross Profit – S&M)
Year 1 Year 2 Year 3 Year 4 Year 5 20 20 Note: Assumed 50% growth in new bookings every year, 80% gross margin, and other expenses equal 80% of prior year’s bookings. Year 1 Year 2 Year 3 Year 4 Year 5
Year 1 Year 2 Year 3 Year 4 Year 5
$15
$23
LAW 07: CUSTOMER SUCCESS = COMPANY SUCCESS Source: iStock
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1% IMPROVEMENT IN CHURN = $100M+ IN VALUATION $140
ARR of 3 Different Businesses
$120
$115
$ ARR
$100
$95
$80
$75
ARR in Y6
Mult
Equity Value
1% Monthly Upsell ~$115M
5x
$575M
~$95M
5x
$475M
~$75M
5x
$375M
(+1% growth; Net Negative Churn)
$60
0% Churn
$40
(100% renewal + upsell)
$20
$0 Y1
Y2
Y3
ARR (0% monthly churn)
Y4
Y5
ARR (1% monthly churn)
Y6
1%Monthly Churn (-1% growth)
ARR (1% net negative monthly churn)
1% Churn = $20M ARR = $100M in Valuation Note: Assumes monthly new bookings increases by $5k per month.
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CUSTOMER SUCCESS MANAGEMENT
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LAW 06: CONTROL YOUR OWN DESTINY… CASH IS KING Source: iStock
BVP BVPCloud CloudIndex Index 45 Publically PublicallyTraded TradedCompanies Companies Indexed as Indexed as of of Jan. Jan.2011 2011||@@2/5/2016 2/5/2016
$63BN MARKET CAP LOST IN 5 WEEKS BVP Cloud Index - Market Cap YTD ($ in bn)
12/31/2015, $202
$190
2/5/2016, $138
$180
$170
$160
$150
$140
$130
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PRIVATE CLOUD MULTIPLES ARE TRADING AT A PREMIUM TO PUBLIC CLOUD MULTIPLES… BUT IT CANT LAST NTM Multiples Over Time Average 10-17x
16.0x 14.0x
14.0x
12.0x
The public / private gap will converge
10.0x 8.0x 6.0x 4.0x
3.8x 2.8x
2.0x
Public cloud multiples are cheap
0.0x 1/1/2011
1/1/2012
1/1/2013
BVP Cloud Index
Legacy Software
1/1/2014
1/1/2015
1/1/2016
Private Cloud Transactions
Source: 45 companies in BVP Cloud Index as of 2/4/2016. CapIQ. Note: Private cloud transactions based on 69 private transactions. In the last 6 months, the average ARR multiple paid was 14.0x. BVP Cloud Index multiple and Legacy software multiples are both NTM GAAP revenue.
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LAW 05: 5 C'S OF CLOUD FINANCE Source: iStock
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5 C’s OF CLOUD FINANCE
1
2
3
4
5
CARR & ARR
CAC PAYBACK
CHURN
CLTV
CASH FLOW
Committed Annual Recurring Revenue (CARR)
Customer Acquisition Cost
Logo Churn
Customer Lifetime Value (Gross Margin Affected)
Gross Burn Rate
Payback Period
MRR Gross Churn
Net Burn Rate
Free Cash Flow Annual Recurring Revenue (ARR)
MRR Net Churn
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BUILD YOUR DASHBOARD TO FLY YOUR ROCKETSHIP…or RIDE YOUR UNICORN
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MULTIPLE WAYS TO BE SUCCESSFUL: KNOW YOUR MODEL AND NAIL IT 1 Yr CAC Payback, 100% Retention Revenue S&M Costs Cash Flows (Gross Profit – S&M)
$10
$10$8
2 Yr CAC Payback, 115% Retention
$24 $16 $10
Results in same cash flow after 4 years $10
$10
$13$12
$15
$1
$0
($8) Year 1
$12
$24
($8) Year 2
Year 3
Note: Assumed 80% gross margin, and no other expenses.
Year 4
($16) Year 1
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Year 2
Year 3
Year 4 32
TAKEAWAY: GUARDRAILS FOR VALUATION Representative SaaS Business ($15mm ARR)
