In Bessemer’s State of the Cloud 2020 Report, we distill twenty years of data on the private and public cloud market trends, dive into the time tested tenets that early-stage cloud founders need to prioritize for growth, and of course, share our predictions that explain the emerging categories we’re eyeing to spot promising new companies.
Since the early 2000s, the industry has seen exponential growth, both in private and public spheres. Many companies have cloud strategies in place, but they are amidst their digital transformations. We believe the future of technology is forged in the cloud, and after two decades of growth it’s just the beginning.
In a time when founders and investors are faced with unprecedented market volatility, it is especially timely to step back and look at the long arc of technology, and the cloud computing revolution in particular.
Source: bvp.com/cloud
Bessemer Venture Partners (Byron Deeter, Elliott Robinson, Hansae Catlett, Mary D'Onofrio)
7. Exponential cloud growth 2000-2020
# of Private Cloud Unicorns | # of Private Cloud Companies
Top private cloud companies
2000
0 | 10’s
8. Exponential cloud growth 2000-2020
0 | 10’s 1 | 100’s
2000
2010
Top private cloud companies
# of Private Cloud Unicorns | # of Private Cloud Companies
9. Exponential cloud growth 2000-2020
0 | 10’s 1 | 100’s 86 | 1000’s
2000 2010
2020
Top private cloud companies
# of Private Cloud Unicorns | # of Private Cloud Companies
*Data as of February 2020
10. 2008 2015 2020
$13.89B
total market
cap
$114.98B
total market cap (8.2x)
$616.1B
total market cap (44x)
$175B
$150B
$125B
$100B
$75B
$50B
$25B
$0B
Top 5 public cloud companies
Up 44x 2008-2020
11. Public Cloud Landscape 2000
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
$40 $400 $4,000 $40,000
Revenue ($M)
FCFMargin
Source: CapIQ; Bessemer Venture Partners analysis
Note: Zero “majority-cloud” public companies. For these charts, public companies are included beginning in the year when cloud/SaaS revenues
are estimated to have comprised >50% of total revenue.
55. 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
56. LAW 1:
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.”
61
Tobias Lütke
CEO & co-founder
57. In the cloud economy, scale wins
Video conferencing
64% 26% 10%
market share market share market share
59. The Second Act sparks a virtuous cycle for
market leadership and expands your TAM
$0
$25
$50
$75
$100
$125
$150
$175
$200
2012 2013 2014 2015
Subscription Solutions Payment Solutions
$23.7M
$50.3M
$105.0M
$205.2M
+95%
+109%
+112%
60. A successful “Second Act” drives scale
Payroll, CapitalPoint of Sale
Voice, Video
& Chat
Email
CORE TAM/PRODUCT “SECOND ACT”
Secrets Provisioning
Networking
61. LAW 3:
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.”
66
Tooey
Courtemanche
CEO & co-founder
62. The sales and marketing learning curve
Initiation
Founder Led Sales
Transition
Sales Led Sales
Execution
Scalable S&M
NAIL IT before
you SCALE IT!
63. LAW 9:
Tone starts at the top
“It’s important for leaders
to address talent and
culture like any company
would address churn
or competitive
differentiation.”
68
Jennifer Tejada
CEO
64. Law 9: Tone starts at the top
69
Volunteer days
20% Project at Google
Diversity in leadership positions
and hiring best practices
Conduct 360 feedback
(Founder/CEO included)
Report on employee
engagement metrics
Define your culture and
core values early
State your company’s mission and vision clearly
1 2 3
INITIATIVE
EXAMPLES
SOFTWARE TO
HELP
DIVERSITY +
INCLUSION
FOUNDER / CEO BEST
PRACTICES:
67. Prediction 1: The future of work will be remote
CULTURE
KNOWLEDGE SHARING
ONBOARDING & MANAGEMENT
GLOBAL HR & PAYROLL
68. Prediction 2: Privacy debt will be the new
technical debt
Jumbo
DATA DE-IDENTIFICATION &
ANONYMIZATION
CONSUMER PRIVACY
MANAGEMENT
PRIVACY WORKFLOW &
OPERATIONS
DATA CATALOGUING &
GOVERNANCE
DATA SCANNING &
INVENTORY
69. Prediction 3: The cloud industry will continue to
proliferate around the globe
71. Prediction 5: The API universe will drive
innovation across all industries
Shipping
Banking
Payments
Email
SSO
Communications
Storage Notifications
Customer
Engagement
Enterprise
Search
Spreadsheets
Media
Messaging
Payments
Monetization
Fraud
Prevention
Payroll
Streaming
Infrastructure
Background
Checks
Location
Healthcare
Logistics
Security
Ecommerce
Dev Documents
Web hosting
Contextual
Data
Video hosting
streaming
72. Prediction 6: We’re entering the age of
“automation-at-scale”
INTEGRATED PLATFORM AS A SERVICE
RPA AND ADJACENCIES
SOFTWARE-DEFINED
MANAGEMENT
LOW CODE / NO CODE
APP DEVELOPMENT
73. 4/21/20 • Confidential
2020
BESSEMER’S 6
PREDICTIONS
The future of work will be
remote
Privacy debt will be the new
technical debt
The cloud industry will continue
to proliferate around the globe
The API universe will drive
innovation across all industries
B2B transactions will move online
We’re entering the age of
“automation-at-scale”
1
2
3
4
5
6
74. Go to bvp.com/cloud
Cloud Giants
Interviews with top CEOs
State of the Cloud 2020
Get the full report
75. The forecast calls for a high chance of cloud
80
68
MON
Cloudy
64
TUE
Cloudy
63
WED
Cloudy
70
THUR
Cloudy
71
FRI
Cloudy
77. Table of contents
Topics
The 6 C’s of cloud finance
Bessemer frameworks and Good, Better, Best
Recommended reading
78. The 6 C’s of Cloud Finance
The 6 metrics you should use to track and to measure your cloud business
CashConversion
Score
0.0x
6
CARR
%Growth
1
CAC Payback
Months
2
CLTV
3
Churn
%
4
CASHFLOW
%Margin
5
79. Committed Annual Recurring Revenue (CARR)
What is CARR?
The subscription, recurring revenue that your cloud business earns. CARR
includes contracted but not yet live ARR, nets out churned and
projected churned ARR, and is normalized to a 1Y period, hence “annual”.
Why does CARR Matter?
YoY growth of CARR tracks business health and benchmarks progress.
CARR is also a leading indicator of revenue. CARR multiples are used to
value cloud businesses in the private markets
Calculating CARR
New Logo ARR (incl. signed but not live ARR)
+ Upsell ARR (incl. signed but not live ARR)
- Churned ARR (incl. projected churned)
- Downsell ARR (incl. projected downsell)
Committed Monthly Recurring Revenue (CMRR)
CMRR = CARR / 12
Benchmark the growth of your cloud business
GOOD 50-100%
CARR
%Growth
BETTER
BEST
100-200%
200%+
1
SeriesA/B
50%
50-100%
100%+
SeriesC+
80. Customer Acquisition Cost (CAC) Payback
What is CAC?
Total sales, marketing, customer success, etc.
costs to acquire a customer. Generally calculated
quarterly
What is CAC Payback?
The time it takes to recover CAC, generally on a
gross profit basis
Why does CAC Payback Matter?
Only after the CAC payback period are customers
profitable to your business; therefore, the shorter
the better
Calculating CAC Payback
Prior Period S&M Expense
/ [(Quarterly Net New MRR) * Gross Margin]
Understand how effective your S&M organization is
GOOD 12
CACPayback
Months
BETTER
BEST
6-12
<6
2
SMB
18
9-18
<9
Mid-Market
24
12-24
<12
Enterprise
81. Customer Lifetime Value (CLTV) / CAC
What is CLTV?
Margin-affected value of a customer to a business over the course of
its relationship
Why does CLTV / CAC Matter?
It is the relationship between acquisition cost and customer value –
over 1x means the customer is net profitable to a business. The higher
the CLTV / CAC, the more valuable a customer is
Calculating CLTV
Customer Lifetime = 1 / (1 – Customer Retention Rate)
Customer Lifetime Value = Customer Lifetime * Average Revenue per
Customer * Profit Gross Margin
Calculating CLTV / CAC
Customer Lifetime Value / Customer Acquisition Cost
Constraining acquisition cost by the value of your customers
GOOD 3x
CLTV/CAC
BETTER
BEST
3-5x
5x+
3
82. Churn
What is Dollar Churn?
The dollars that churned or downsell customers represented
e
Why does Dollar Churn Matter?
Only net new ARR provides growth. Churned / downsell ARR needs
to be replaced before growth starts; therefore, it is difficult to grow
with high churn numbers
What is Negative Dollar Churn (Net Retention)?
Customers pay you even more money than they did when they
initially contracted. This includes expansion or upsell ARR
Calculating Negative Dollar Churn (Net Retention)
(Starting CARR + Upsell CARR – Downsell CARR – Churned CARR)
/ Starting CARR
Calculating Gross Dollar Churn
(- Downsell CARR - Churned CARR) / Starting CARR
Understand the stickiness of your platform
GOOD
Churn
%
BETTER
BEST
4
SMB Mid-Market Enterprise
Net
Gross
Net
Gross
Net
Gross
10-20%
20-30%
0-10%
20%
NetNeg10%
15%
0-10%
15-20%
NetNeg10%-0%
10-20%
NetNeg10-20%
10-15%
NetNeg
<15%
NetNeg10%+
<10%
NetNeg20%+
<10%
83. Cash Flow
What is Free Cash Flow (FCF)?
Cash generated after operating and capital expenditures, which adds back non-
cash expenses like stock-based compensation
Why does FCF Matter?
When positive, FCF dollars are the reinvestable dollars that you can put back into
your business or return to shareholders; when negative, your runway is limited by
the amount of FCF you burn every year
Calculating FCF
(Earnings before interest and tax * (1 – tax rate))
+ Depreciation & Amortization
- Change in Net Working Capital
- Capital Expenditures
+ Non-Cash Charges
Calculating FCF Margin
FCF / Revenue
Spending rationally relative to scale
GOOD -50-0%
CASHFLOW
%Margin
BETTER
BEST
Breakeven
CF+
5
84. Cash Conversion Score (CCS)
What is Cash Conversion Score (CCS)?
The ratio of CARR to capital raised to date (debt + equity) minus the
cash on the balance sheet
Why does CCS Matter?
It measures the return on invested capital into a business, showing
how well invested dollars convert into CARR, on which a cloud
business will generate a multiple. It is thereby correlated to the IRR
that investors will earn by investing in your cloud business. It is also a
high-level metric to measure the efficiency of a business; it is
impossible to have a high CCS without a scalable S&M org and
product / market fit
Calculating CCS
CARR / (Capital Raised to Date – Cash)
Understanding return on invested capital in your cloud business
GOOD 0.25-0.5x
CCS
0.0x
BETTER
BEST
0.5-1x
1x+
6
85. The 6 C’s of Cloud Finance
The 6 metrics you should use to track and to measure your cloud business
GOOD
BETTER
BEST
0.25-0.5x
CCS
0.0x
0.5-1x
1x+
6
50-100%
CARR
%Growth
SeriesA/B
100-200%
200%+
1
CACPayback
Months
Enterprise
2
24
12-24
<12
3x
CLTV
3-5x
5x+
3
Churn
%
Enterprise
4
NetNegative
10%
NetNegative
10-20%
NetNegative
20%+
-50-0%
CASHFLOW
%Margin
Breakeven
CF+
5
86. Recommended reading from Bessemer
Roadmaps
• The 10 laws of cloud
• The developer laws
• A cloud for every industry
• B2B Marketplaces
• Data Privacy Engineering
• Remote Work
States of the Cloud
• State of the Cloud 2019
• State of the Cloud 2019: Europa
• State of the Cloud 2018
• State of the Cloud 2017
• State of the Cloud 2016
• State of the Cloud 2015
Insights
• Cash conversion score
• How fast should a cloud company grow?
• Five accounting metrics for cloud companies
• An inside look at our investment process for Twilio
• Byron Deeter on investing in 14 different billion-dollar cloud
companies
External reports:
• Goldman Software Sector Update
• 2019 Keybanc Capital Markets SaaS Survey
• Wisdom Tree Cloud Computing Fund