State of Cloud 2016 - Final

State of the Cloud Report

2016Byron Deeter & Kristina Shen

www.bvp.com/cloud

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


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


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

LinkedIn

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

LinkedIn

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)


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%


PREIPO($60-100MARR)

PUBLIC($100M+ARR)

?



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%


PREIPO($60-100MARR)

PUBLIC($100M+ARR)

MID($10-30MARR)

NetNewARR

NetCashBurn

>1

EARLY(<$10MARR)

CLTV

CAC>3


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



20151

OftheCloud100wereCybersecurityCompanies,

thelargestshare


14$2.1trillion


20151

$170Billion

OftheCloud100wereCybersecurityCompanies,

thelargestshare

WorldwideCybersecurityMarketby2020,upfrom

$75.4Bin20152



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)

Email

SSO

Customer Engagement

Storage

46

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

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

State of Cloud 2016 - Final

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