This November, we gathered our global founders and CEOs in San Francisco for our Accel Connect event. For part of the day, we discussed the current environment, independent of founders’ stage, as well as the changing requirements for building great, enduring companies. It’s a day we look forward to each year. It’s also where we (Accel) attempted to synthesize a year’s worth of our own thinking: what’s happened in the markets, what trends caught our attention, and how have our own theses evolved. If successful, we ground our founders in the current state of affairs, while keeping an eye on what’s to come in 2017. We’ve been talking to folks around our community about the discussion at Connect. Based on feedback, we wanted to share some of the presentation. Though it’s slightly “dated” (the material was built pre-election) and curated (for Accel’s global CEOs), we hope there are some nuggets of wisdom that can be useful in your own thinking — whether as a founder, employee, investor, or just an interested observer. The summary to accompany the slides can be found here: https://medium.com/@Accel/reflecting-on-2016-and-looking-ahead-to-2017-6e6efe224224#.wl0y72oor

1. State of the Union
Accel’s Perspective of the Current
Technology Landscape
November 1, 2016

2. State of the Union 2
1. Global interconnectedness
~30%
Revenue outside of initial
home market in Accel portfolio
companies (at age = 5 years)
0.5b
2001
10%
3.6b
2016
25%
global internet
population*
broadband
penetration
global smartphone
penetration ~1% 40%
*Internet Telecom Union

3. 1960 19901970 1980 2000 2010 2020
State of the Union 3
Mainframe
1MM units
Minicomputers
10MM units
PCs
100MM units
Desktop Web
1B+ units
Mobile/Smartphone/IoT
10B+ units
Autonomous Vehicles
Robotics & Drones2. Acceleration of open,
digital platforms Satellites and Space Tech
*Morgan Stanley, IDC, Gartner

4. State of the Union 4
3. Data centrality and applied AI/ML
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90%of the world’s data has been
created in the past 2 years
Rich, proprietary data around users/
customers stored ad infinitum
Widely accessible,
GPU-enabled compute
Openly available ML algorithms
Rich data network effects powering
data-driven software and services
*
*IBM Big Data Report

5. State of the Union 5
4. Readily available building blocks
(the power of NIH)
Cloud platforms Abundance of
Open Source
Distribution
Platforms
</>
Vocal & Viral
Communities
TESTER
</>
</>
</>
Scalable APIs
APIs
APIs
APIs
APIs
98% of Accel teams are accelerating development via cloud or APIs in 2016 (<10%, 2006)

6. State of the Union 6
Advantage New Tech Entrants
Accelerating
Platforms
xConnected Global
Markets
Pre-Existing
Building Blocks
</>
APIs
x xData
Centrality
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7. New players taking the lead

8. State of the Union 8
Changing of the guard?
New GuardOil Finance
Old(er) Tech & Telecom Industrial & CPG
* CapIQ: Represents the most valuable 20+ companies of S&P 500 over the last 20 years

9. State of the Union 9
‘New Guard’ rapid rise to the Top 5
Top 25 S&P Companies By Market Cap
2008 2009 2010 2011 2012 2013 2014 2015 2016
*CapIQ

10. State of the Union 10
Market cap of the top 5
Top 5 Global Companies By Market Cap
2001 2006 2011 2016
$425B
$239B
$289B
$250B
$250B
$405B
$378B
$392B
$339B
$610B
$542B
$289B
$263B
$457B$292B
$219B
$231B $348B
$334B
$271B
*CapIQ: Market Caps Average Over Respective Years
$2.3T
cumulative value of
top 5 in 2016
$1.4T
cumulative value of
top 5 in 2001

11. State of the Union 11
Average age of the top 5
2001 2016
109 yrs
39 yrs
90 yrs
26 yrs
Age in 2001
41 yrs
40 yrs
18 yrs
22 yrs
12 yrs
Age in 2016
189 yrs
est. 1892
est. 1975
est. 1911
est. 1812
est. 1962
est. 1976
est. 1998
est. 1975
est. 1994
est. 2004
1.
5.
3.
2.
4.
26average age of
companies in 2016

12. State of the Union 12
Rising from Asia…
$256B market cap
#10
$254B market cap
#11
$235B market cap
#13
19 years old18 years old17 years old
*CapIQ Current Market Cap Estimates
globally globally globally

13. Navigating the disruption
Catalyzing strategic dialogue from incumbents

14. State of the Union 14
# of M&A Deals > $500 mm
DealCount
0
18
35
53
70
DealValue($inbillions)
$0
$75
$150
$225
$300
2009 2010 2011 2012 2013 2014 2015 2016
67
64
54
43
51
29
26
13
$240
$133
$181
$104$97
$29$43$41
13
26
29
51
43
54
64
67
Example
Transactions
Goldman Sachs - Tech M&A Report, Pitchbook, Venturesource
Resurgence of Technology M&A

15. State of the Union 15
Non-tech incumbents responding
$7b+aggregate acquisition value, TTM from non-tech
$1b $3.3b $1b $500m $475m
Pitchbook

16. State of the Union 16
IPO window is open for durable companies
Tech IPO Issuances Globally
($inbillions)
$0
$23
$45
$68
$90
2013 2014 2015 2016
Capital Raised IPO Market Capitalization
$27
$83$79
$50
$5
$21$16$8
Representative
IPOs
Goldman Sachs - Tech M&A Report, Pitchbook, Venturesource
$5

17. Changing conditions…

18. State of the Union
Capital invested via VC & IPOs
Company Fundraising via Private and Public Capital, 1980-2016
($inbillions)
$0
$30
$60
$90
$120
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 1Q 2016
Private IPO
Peak - $100B
Local Max - $50B
Avg Past 20
Years - $20B
New Steady State?
$30-40B
18NVCA, CapitalIQ

19. State of the Union 19
Zooming in on recent quarters
Venture Dollars invested in Core IT Categories, All Stages, 2012-2016
($inbillions)
$0
$6
$12
$18
$24
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q
$10.5
$23.4
$14.0
$13.3
$15.4
$13.7
$14.4$14.8
$10.8
$14.6
$9.0$8.7
$7.5
$6.6$6.7
$5.6
$6.5
$7.3
$5.3
2012 2013 2014 2015 2016
Q3 2016 -
30% vs year-
ago, reset
underway
Surge in VC
activity in
early 2014
NVCA, CapitalIQ

20. State of the Union 20
Navigating the funding climate
Keeping an eye on milestones for follow-on funding
Seed Series A Series B-C Late Stage
Strong teams with
crisp end-market
understanding, chasing
large, urgent markets
Early key metrics that
demonstrate deep,
recurring user value signs
of an efficient GTM; team
beginning to cement
Clear capital efficiency +
unit economics; line of sight
to business model
converging, story to $100m
ARR or 100m MAUs
Last dollars needed, just
crossing to profitability (or
line of sight to it),
demonstrable exit path
Very active Active Very Selective Selective

21. State of the Union 21
Growth (%) + FCF (%)
The Rule of 50
(% of annual revenue growth) + (EBITDA as a % of revenue) should be ≥ 50
Trading Range (NTM) Trading Range (NTM) Trading Range (NTM)
4-6x 6-8x 8-10x
CapIQ & Public Company Filings
Growth (%) + FCF (%) Growth (%) + FCF (%)
~50%~35%~20%

22. State of the Union 22
A New Definition of “Product”
Product as the sum of the core app or service AND how its distributed
CapIQ & Public Company Filings
Product ≠
Customer
Acquisition
Marketing
and Sales
Software
Bits
Retention
+ Success
Product =
Customer
Acquisition
Marketing
and Sales
Software
Bits
Retention
+ Success

23. Customer Diversification: the “Caltrain test”
23
Companies need to diversify their customer base beyond just neighboring startups

24. State of the Union 24
41K
companies since
2000 that have
raised venture
66
have ever achieved
an exit >$1b
(realized unicorn)**
440
have ever achieved
an exit >$100m
Rare air
Mattermark, Crunchbase, CB Insights, VentureSource** 175 unrealized unicorns but onlyy 66 realized

25. State of the Union 25
$6b
$10b
$3.3b
$3b
$1.2b
$5b
$390m
Accel-led Series A
+$150b market cap
$500m
$750m
$700m
IPOs
M&A
$1.5B
$1B
Since 2013
Since 2013
$700m
$400m
$1.2b
$475m
$700m
Thank you
$800m
$1.6m