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State of the Cloud 2021: The Age of Cloud Unicorns with Bessemer Venture Partners

State of the Cloud 2021: The Age of Cloud Unicorns with Bessemer Venture Partners

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Unicorn birth rate is at an all-time high and the cloud economy is officially entering the age of decacorns. Bessemer Venture Partners shares the industry trends that led to the creation of these massive private cloud companies. Releasing vital insights for founders with big ambitions, Byron Deeter, Elliott Robinson, and Mary D'Onofrio share the insights from benchmark data and key frameworks that power the fastest-growing businesses in technology.

Unicorn birth rate is at an all-time high and the cloud economy is officially entering the age of decacorns. Bessemer Venture Partners shares the industry trends that led to the creation of these massive private cloud companies. Releasing vital insights for founders with big ambitions, Byron Deeter, Elliott Robinson, and Mary D'Onofrio share the insights from benchmark data and key frameworks that power the fastest-growing businesses in technology.

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State of the Cloud 2021: The Age of Cloud Unicorns with Bessemer Venture Partners

  1. 1. State of the Cloud 2021 How To Build A Cloud Unicorn Byron Deeter PARTNER @bdeeter Elliott Robinson PARTNER @TheValuesVC Mary D’Onofrio PARTNER @mcadonofrio
  2. 2. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Public cloud reaches $2.9 trillion Total cloud market cap Feb 2020 35% CAGR Mar 2021 Sept 2021 $1T $2.4T 140% CAGR 21% CAGR 65% CAGR $0T $1.5T $3T $2.9T
  3. 3. Cloud industry up 12x in eight years 0% 200% 400% 600% 800% 1,000% 1,200% 1,400% Net Change EMCLOUD 2013 2014 2015 2016 2017 2018 2019 2020 2021 INSTITUTIONALIZED WITH NASDAQ AS EMCLOUD September, 2018 Bessemer Cloud Index since launch
  4. 4. Cloud pulls ways from Internet and Mobile 0% 100% 200% 300% 400% 500% 600% 700% 800% 900% 1000% 2016 2017 2018 2019 2020 MT SAAS FAANG SPX DJI MT SAAS Performance: Approx. +800% S&P 500 Performance: Approx. +70% FAANG Performance: Approx. +330% DJIA Performance: Approx. +65% Five years of MT SAAS vs. FAANG performance
  5. 5. Changing of the guard: MT SAAS overtakes FAANG! MT SAAS, EMCLOUD, FAANG, and Major Indexes Performance since 2020 -50% 0% 50% 100% 150% Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Percent Change EMCLOUD SPX DJI RUT MT SAAS FAANG EMCLOUD Performance: Approx. +135% MT SAAS Performance: Approx. +140% Russell 2000 Performance: Approx. +35% FAANG Performance: Approx. +110% S&P Performance: Approx. +35% Dow Jones Performance: Approx. +20%
  6. 6. 2020 2021 $0B $20B $40B $60B $80B $100B $120B $140B $160B 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 * LinkedIn, First Unicorn in 2008 Zero to 150 unicorns in 14 years New milestone: Every company on The Cloud 100 is a unicorn! +74% YoY
  7. 7. Hello Unicorns Total cumulative value 803 private unicorns $2,600B 100 C100 companies $518B
  8. 8. 2021 is on track of making tech history!
  9. 9. Proceeds from U.S. IPOs have reached $100.5 billion in 2021 Initial public offerings have come roaring back 42.7 54.9 85.3 30 18.8 35.5 54.2 46.4 78.2 100.5 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 $0B $25B $50B $75B $100B
  10. 10. 2020 2021 In the first half of 2021, VC invested more than $288 billion in startups around the world +157% YoY $60.7B Q2 2020 $156.2B Q2 2021 37 40.5 40 43.3 62.7 57.3 62 57.9 68.7 70 78.8 68 69.2 65.3 63.1 61.1 60.7 80.4 100.4 136.2 156.2 $0B $20B $40B $60B $80B $100B $120B $140B $160B Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2016 2017 2018 2019 2020 2021
  11. 11. VC realizations are for the record books 410+ $2.8T $232B Sold of tech startups by VCs in 1H’21 Companies went public on Nasdaq in H1’21 Global M&A topped to a new high in H1’21
  12. 12. $0M $10M $20M $30M $40M $50M $60M $70M $80M $90M $100M 1 2 3 4 5 6 7 8 9 10 11 12 13 $ ARR in Millions Years from $1M to $100M We have a long history of helping cloud companies scale from $1M to $100MM of ARR
  13. 13. Many category leaders are on the path to $1 billion in ARR by the end of 2021 $ ARR in Millions Years from $100M to $1B $100M $200M $300M $400M $500M $600M $700M $800M $900M $1,000M 0 1 2 3 4 5 6 7
  14. 14. In the cloud economy, scale wins. 1 2 3 4 5 6 7 8 9 10 Growth at optimal cost. Invest behind the cloud sales and marketing learning curve. Product as a competitive advantage. Master the 5 C’s of cloud finance. Discover your secret KPI(s). Customer success is company success. Impact through engagement or insights. Tone starts at the top. Map your fuel stops. (Bonus) Run the “Public Playbook.” 1 3 9 5
  15. 15. In the cloud economy, scale wins “Reaching scale not only means you’ve captured a large slice of the market, but also that you’ve set the pace of innovation for the rest of the industry.” Tobias Lütke CEO & co-founder LAW 1
  16. 16. In the cloud economy, scale wins Video conferencing 64% 26% 10% market share market share market share
  17. 17. A successful “Second Act” drives scale Experimentation Feature management Voice, Video & Chat Email Secrets Provisioning Networking CORE TAM/PRODUCT “SECOND ACT”
  18. 18. The Second Act sparks a virtuous cycle for market leadership and expands your TAM $0M $25M $50M $75M $100M $125M $150M $175M $200M 2012 2013 2014 2015 Subscription Solutions Payment Solutions CASE: +112% +109% +95% $23.7M $50.3M $105.0M $205.2M
  19. 19. Payment solutions create a new avenue for revenue growth over time CASE: $0M $25M $50M $75M Subscription Solutions Payment Solutions +120% +93% +107%
  20. 20. How payment solutions unlocked revenue growth for Toast CASE: $0M $25M $50M $75M $100M $125M $150M $175M $200M $225M $250M Subscription Solutions Payment Solutions +160% +244% +165%
  21. 21. 2013 2014 2012 2015 2016 2017 2018 2019 2020 K 10K 20K 30K 40K 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 27K 40K 14K 6K 1K Toast’s accelerated customer growth via product development ⁃ Re-branded to “Toast” - Online Ordering ⁃ Point of Sale ⁃ Payment Processing ⁃ Gift Cards ⁃ Loyalty ⁃ Kitchen Display System - Multi-Location Management/ Enterprise - Menu Management - Labor Reporting - Inventory - Kiosk - API - ToastGo - Toast Takeout - Guest Feedback - Payroll & Team Management - Marketing - Capital - Toast Hardware - Toast Now - Toast Delivery Services - Order & Pay - Toast Go 2 CASE: Number of Restaurant Locations 2011 ⁃ Founded
  22. 22. Invest behind the cloud sales and marketing learning curve “Be cautious with investments as you test and iterate. Fail fast. Be aggressive and scale your go- to-market when something is really working.” Tooey Courtemanche CEO & co-founder LAW 3
  23. 23. Nail it before you scale it! In the New Normal, you really have to nail it before you scale it INITIATION Founder Led Sales TRANSITION Sales Led Sales EXECUTION Scalable S&M
  24. 24. INITIATION Founder Led Sales TRANSITION Sales Led Sales EXECUTION Scalable S&M How Procore ramped their sales and marketing learning curve Despite facing skeptics, CEO Tooey Courtemanche never gave up. “Nothing was going to stop me. And we were always able to find a few early adopters and people that believed in it to keep going.” CASE: Procore’s leadership team began professionalizing Procore’s go-to- market engine in earnest. With the benefit of Dennis Lyandres, a phenomenal sales leader, Procore invested intelligently and aggressively The approach proved key to building a powerful sales and customer success organization that could tackle different market segments, from small and mid-sized builders to large companies In the first year of our investment, Procore more than doubled its ARR growth rate
  25. 25. Product-led growth Usage-based pricing Cloud Marketplaces Three GTM strategies top cloud companies employ in the New Normal
  26. 26. Aim for a GTM flywheel that creates champions, not a static funnel Champion Captivate Catalyze Cultivate Cycle of creating champions
  27. 27. Fire up the flywheel to drive momentum Champion Captivate Catalyze Cultivate Cycle of creating champions Established a diverse customer advisory board and doubled the number of champions Grew alongside customers by developing proprietary dashboards to help them optimize usage and costs Deployed a remote-first playbook for strategic involvement and virtual enablement trainings focused on scalability and self-sufficiency Provided dedicated support SWAT teams during promotions and upgrades Amplified individual user voices through customer-led marketing initiatives (#ThingsCustomersSay series, Inaugural customer survey) Renewed content marketing with a focus on interactive, educational pieces and thought leadership Shortened time-to-value for customers by 75 days even with a fully-distributed workforce Developed a culture of project partnership with customer-centric product innovation and cross-functional collaboration
  28. 28. Results from Hyperscience’s flywheel 250% YoY ARR growth 10x increase in platform usage 140% overall account growth 170% net ARR retention Peter Brodsky, CEO and Co-Founder of Hyperscience
  29. 29. The 5 C’s of Cloud “Driving rigor and maintaining cadence in the review of KPI’s increases collective learning for your team, helps leaders spot issues and opportunities early, and builds operational discipline that scales.” Jennifer Tejada CEO LAW 5
  30. 30. The 5 C’s of Cloud Finance The 5 metrics you should use to track and to measure your cloud business GOOD BETTER BEST 50-100% CARR % Growth Series A/B 100-200% 200%+ 1 CAC Payback Months Enterprise 2 24 12-24 <12 3x CLTV 3-5x 5x+ 3 Churn % Enterprise 4 Net Negative 10% Net Negative 10-20% Net Negative 20%+ -50-0% CASH FLOW % Margin Breakeven CF+ 5
  31. 31. Introducing Cash Conversion Score A new measure of cloud health Current CARR Total Capital Raised To Date – Cash (Equity + Debt – Cash)
  32. 32. Good, Better, Best: Cash Conversion Score A new measure of cloud health GOOD CASH CONVERSION SCORE INTERNAL RATE OF RETURN 0.25-0.5x 40% 0.5-1.0x 80% 1.0x 120% BETTER BEST
  33. 33. The 6 C’s of Cloud Finance The 6 metrics you should use to track and to measure your cloud business 0.25-0.5x CCS 0.0x 0.5-1x 1x+ 6 50-100% CARR % Growth Series A/B 100-200% 200%+ 1 CAC Payback Months Enterprise 2 24 12-24 <12 3x CLTV 3-5x 5x+ 3 Churn % Enterprise 4 Net Negative 10% Net Negative 10-20% Net Negative 20%+ -50-0% CASH FLOW % Margin Breakeven CF+ 5 GOOD BETTER BEST
  34. 34. The Age of Cloud Decacorns Cloud #1 Average Valuation $19.9Bn #1 #2 #3 #4 #5 #6 #7 #8 #9 #10 * * *Now public Top 10 2021 Cloud 100 Companies
  35. 35. 0.3 0.8 0.5 0.7 1.1 1.8 1.1 1.2 1.4 1.7 2.7 5.2 3.4 4.0 4.8 6.0 9.4 19.9 $0B $2B $4B $6B $8B $10B $12B $14B $16B $18B $20B 2016 2017 2018 2019 2020 2021 Average Cloud 90-100 Valuation Average Cloud 100 Company Valuation Average Cloud 1-10 Valuation Average Cloud 100 Company Valuations Over Time Cloud 1-10 +$16.6Bn 43% CAGR Cloud 100 +$4.1Bn 38% CAGR Cloud 90-100 +$1.5Bn 44% CAGR The average 2021 Cloud 100 company is worth $5.2Bn, up +$2.5Bn YoY 6Y Growth
  36. 36. 9x 8x 11x 13x 23x 34x 2016 2017 2018 2019 2020 2021 Average 270% Cloud 100 Multiples Cloud multiples continue to rise ARR multiples increased +270% since 2016 to 34x, up from 23x just a year ago
  37. 37. 65% 95% 100% 100% Cloud 100 Growth Rates 2017 2018 2019 2020 110% 2021 60% Average Top quartile 65% 90% 80% 90% Cloud growth rates continue to accelerate The average Cloud 100 company grew +90% YoY in 2021, and the top quartile companies grew +110% YoY, faster than ever before
  38. 38. Growth-adjusted multiples increase as well 0.1x 0.2x 0.1x 0.3x 0.4x 2019 Average 2021 2020 2018 2017 180% Growth-adjusted multiples have increased 180% in the last 5 years, indicating investor demand for cloud assets Cloud 100 Growth-Adjusted Multiples
  39. 39. MessageBird Mailchimp OneTrust Calendly CS Disco Razorpay Contentful Klaviyo Datarobot Snyk Outsystems Avidxchange ActiveCampaign OwnBackup Exabeam Figma Gitlab Airtable Samsara Carta Gusto Scale AI Miro Amplitude Grammerly Notion Checkr Postman Automattic Benchling Kong Webflow Keep Truckin Flutterwave Loom 6Sense ThoughtSpot Netskope Yardi Tripactions Gong.io Rubrik Checkout.com Rapyd Workato Outreach Icertis Highspot Tanium Cohesity Automation Anywhere Lucid MX Podium Entrata Braze Invision Cedar Chainalysis Cockroach Labs Dataminr Grafana Labs Riskified Sisense BigID Socure VTS HighRadius Attentive Pendo Celonis BrowserStack Fanruan JST Network Airwallex Culture Amp The rise of cloud is a global phenomenon Best-in-class cloud companies can be found all around the world, as evidenced by this year’s Cloud 100 Honorees * Based on founding location or primary office listed in Pitchbook, CapIQ, Crunchbase Freshworks Talkdesk Hopin
  40. 40. 146 71 63 56 43 33 31 29 18 14 14 $0B $20B $40B $60B $80B $100B $120B $140B $160B Fintech S&M/CX Data/Infra Des/Coll/Prod Vertical Developer Security Automation Finance/Legal HR BI/Analytics Total Cloud 100 List Valuation by Subsector Fintech category leads subsegment total valuation after big YoY move, followed by sales/marketing/CX Sum of 2021 Cloud 100 Valuations Sum of 2020 Cloud 100 Valuations Sum of 2019 Cloud 100 Valuations VALUATIONS
  41. 41. Data Infrastructure Fintech Massive growth in data infrastructure and fintech Total Cloud 100 List Valuation by Subsector $37.3B $52.3B $63B $25.7B $45.4B $146B 2019 2020 2021 2019 2020 2021 +461% +70%
  42. 42. 1. Unbundling of the Office 2. We’re bringing S-M-B back with SaaS 3. Diversity, equity, and inclusion software take their rightful place 4. Data and machine learning infrastructure accelerates to new heights 5. The rise of the “citizen” developer and creator 6. Fintech and crypto players are changing financial services forever 7. The vertical SaaS wave becomes a tsunami 2021 Predictions
  43. 43. Prediction 1: The unbundling of the Office CALENDARS PROJECT MANAGEMENT VIRTUAL OFFICE/TEAM ROOM EMAILS/MESSAGING EVENTS COLLABORATIONS
  44. 44. Prediction 2: We’re bringing S-M-B back with SaaS SALES & MARKETING VERTICAL IT/OPS CUSTOMER HR FINANCE/LEGAL
  45. 45. Prediction 3: Diversity, equity, and inclusion software take their rightful place DATA TRACKING/TALENT MANAGEMENT DEI CULTURE TRAINING & EDICATION REPORTING RECRUITING
  46. 46. Prediction 4: Data and machine learning infrastructure accelerates to new heights AI/ML OPS DATA MONITORING DATA VISUALIZATION DATA PIPELINE DATA MANAGEMENT/ GOVERNANCE DATA ANALYTICS/SCIENCE
  47. 47. Prediction 5: The rise of the “citizen” developer and creator NO CODE/LOW-CODE APP-BUILDING TOOLS CREATOR EMPOWEREMENT TOOLS
  48. 48. Prediction 6: Fintech and crypto players are changing financial services forever BANKING-AS-A-SERVICE & CARD ISSUANCE B2C & B2B LENDING IDENTITY / FRAUD B2C & B2B PAYMENTS BROKERAGE / WEALTH MGMT CRYPTO
  49. 49. Prediction 7: The vertical SaaS wave becomes a tsunami AUTO REPAIR FIELD SERVICES EDUCATION LEGAL NETWORKING BANKING DENTAL EARLY EDUCATION REAL ESTATE PUBLIC SECTOR HEALTHCARE BARBERSHOP REAL ESTATE AGENTS SALON & SPA LAUNDRY OPERATING PLATFORM CONSTRUCTION SHIFT WORKING
  50. 50. How to build a cloud unicorn Top takeaways 1. Every company on the Cloud 100 is now a unicorn; the industry has grown from zero to 150 cloud unicorns in 14 years! The average 2021 Cloud 100 company is worth $5.2Bn, up +$2.5Bn YoY 2. The 10 Laws of Cloud are time tested lessons that help startups grow into category leaders. 4. GTM strategies have adapted to the New Normal, best practices include product-led growth, usage-based pricing, and the adoption of cloud marketplaces. 3. In the cloud economy scale wins; the Second Act sparks a virtuous cycle for market leadership. 5. The 6 C’s of Cloud Finance help companies measure and scale operationally efficient businesses.
  51. 51. Resources How to Build a Cloud Unicorn Scaling to $100 Million bvp.com/scale The New Cloud Index bvp.com/cloudindex Go to bvp.com/cloud
  52. 52. Even in the New Normal, we’re living in an age of unicorns. Byron Deeter PARTNER @bdeeter Elliott Robinson PARTNER @TheValuesVC Mary D’Onofrio PARTNER @mcadonofrio
  53. 53. Resources How to Build a Cloud Unicorn Scaling to $100 Million bvp.com/scale The New Cloud Index bvp.com/cloudindex Go to bvp.com/cloud
  54. 54. Thank You bvp.com/cloud @BessemerVP

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