"10 Laws of Building a Unicorn" at SaaStr Annual 2016

BYRON DEETER Bessemer Venture Partners

BESSEMER’S 10 LAWS OF CLOUD COMPUTING 2016 BYRON DEETER www.bvp.com/cloud @bdeeter

Source: Flickr/Clemens Grün www.bvp.com/cloud 3

Source: Victor J. Blue/Getty Images 4 4www.bvp.com/cloud 4

Source: Shutterstock.com/DeshaCAM

www.bvp.com/cloud 5

Source: HBO/iStock 6 www.bvp.com/cloud

Source: Blue Apron Blog 7 www.bvp.com/cloud

Source: iStock 8 www.bvp.com/cloud

Source:Flickr/Marco www.bvp.com/cloud 9

Source: Microsoft 10 www.bvp.com/cloud

LAW 10: ONDEMAND EVERYTHING

Source: Flickr/AJ LEON 11 www.bvp.com/cloud

Source: Docusign 12 www.bvp.com/cloud

Source: Shutterstock 13 www.bvp.com/cloud

Source: PCWallart.com 14 www.bvp.com/cloud

LAW 09: GROW (EFFICIENTLY) …OR DIE

TOP TIER $10M ARR COMPANY SHOULD GROW 300% YOY

Source:SECfillings.BVPCloudIndexpubliccompanies.T=quarters 15

@ $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

FASTER GROWTH IS REWARDED – 10% GROWTH = +1.0X IN REVENUE MULTIPLE

Appfolio, Inc.

Atlassian Corporation

Bazaarvoice

Benefitfocus BroadSoft

Castlight Health

Constant Contact

Cornerstone OnDemand

Cvent Demandware HubSpot

Instructure

Intralinks

Jive Software Lifelock

LinkedIn

LivePerson

LogMein

Marin Software

Medidata Solutions

Mindbody, Inc

Mobileiron

NetSuite New Relic

Proofpoint

Qualys

RealPage

Salesforce

ServiceNow

Shopify

Textura

The Ultimate Software Group

Veeva

Wix

Workday

Xactly

Xero

Zendesk

-1.0x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

10.0x 45 Public Cloud Companies +10% growth results in +1.0x Rev Mult

10% 20% 30% 40% 50% 60%

y = 10.181x + 1.1297 R2 = 0.36068

’15-’16 Revenue Growth

2016

Rev

enue

Mul

tiple

Source: 45 companies in BVP Cloud Index. CapIQ www.bvp.com/cloud 16


LAW 08: SALES EFFICIENCY IS YOUR OXYGEN


www.bvp.com/cloud

CAC PAYBACK PERIOD =

(Months)

TOTAL SALES & MARKETING COSTS OF PRIOR QUARTER

NEW CMRR ADDED IN PRIOR QUARTER X GROSS MARGIN % OF THE BUSINESS

CUSTOMER ACQUISITION COST - CAC PAYBACK

19

20

$10 $15 $23$34

$51

($16) ($24)($36)

($54)

($81)

($8)($12) ($18)

($27)($41)

Year1 Year2 Year3 Year4 Year5

EFFICIENT CAC PAYBACK = MORE FOUNDER OWNERSHIP ResulKngP&Lfor3companiesgrowingat50%newbookingswithdifferentCACpaybacks

Total cash burn: $106MNew Bookings S&M Costs Cash Flows (Gross Profit – S&M)

1 Yr CAC Payback 1.5 Yr CAC Payback 2 Yr CAC Payback

$10 $15 $23$34

$51

($8) ($12) ($18)($27)

($41)


$10 $15$23

$34

$51

($12) ($18)($27)

($41)

($61)

($4) ($6) ($9) ($14)($20)


Total cash burn: $0M Total cash burn: $53M

Note:Assumed50%growthinnewbookingseveryyear,80%grossmargin,andotherexpensesequal80%ofprioryear’sbookings. 20


LAW 07: CUSTOMER SUCCESS = COMPANY SUCCESS

1% IMPROVEMENT IN CHURN = $100M+ IN VALUATION

Note:Assumesmonthlynewbookingsincreasesby$5kpermonth.

0%Churn(100%renewal+upsell)

1%MonthlyChurn(-1%growth)

1%MonthlyUpsell(+1%growth;NetNegaZveChurn)

~$95M

~$75M

~$115M

ARRinY6

5x

5x

5x

Mult

$475M

$375M

$575M

EquityValue

$95

$75

$115

$0

$20

$40

$60

$80

$100

$120

$140

Y1 Y2 Y3 Y4 Y5 Y6

$ARR

ARRof3DifferentBusinesses

ARR(0%monthlychurn) ARR(1%monthlychurn)

ARR(1%netnegaZvemonthlychurn)

1%Churn=$20MARR=$100MinValuaKon

www.bvp.com/cloud 22

CUSTOMER SUCCESS MANAGEMENT

23 www.bvp.com/cloud


LAW 06: CONTROL YOUR OWN DESTINY… CASH IS KING

12/31/2015

BVPCloudIndex45PublicallyTradedCompanies

IndexedasofJan.2011|@12/31/2015

25

v

www.bvp.com/cloud

BVPCloudIndex45PublicallyTradedCompanies

IndexedasofJan.2011|@2/5/2016

26

$63BN MARKET CAP LOST IN 5 WEEKS


PRIVATE CLOUD MULTIPLES ARE TRADING AT A PREMIUM TO PUBLIC CLOUD MULTIPLES… BUT IT CANT LAST

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.

The public / private gap

will converge

Public cloud multiples are cheap

28


LAW 05: 5 C'S OF CLOUD FINANCE

Gross Burn Rate

Net Burn Rate

Free Cash Flow

Committed Annual

Recurring Revenue (CARR)

Annual Recurring

Revenue (ARR)

Customer Acquisition Cost

Payback Period

Logo Churn

MRR Gross Churn

MRR Net Churn

Customer Lifetime Value (Gross Margin

Affected)

CARR & ARR CAC PAYBACK CHURN CLTV CASH FLOW

1 2 3 4 5

5 C’s OF CLOUD FINANCE


BUILD YOUR DASHBOARD TO FLY YOUR ROCKETSHIP…or RIDE YOUR UNICORN


$10 $10 $10 $10

$0

$8

$16

$24

($8)

Year1 Year2 Year3 Year4

MULTIPLE WAYS TO BE SUCCESSFUL: KNOW YOUR MODEL AND NAIL IT

Revenue S&M Costs Cash Flows (Gross Profit – S&M)

1 Yr CAC Payback, 100% Retention 2 Yr CAC Payback, 115% Retention

Note:Assumed80%grossmargin,andnootherexpenses.

$10 $12 $13 $15

($8)

$1

$12

$24

($16)

Year1 Year2 Year3 Year4

Resultsinsamecashflowaber4years


TAKEAWAY: GUARDRAILS FOR VALUATION Representative SaaS 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


1x 1% 1yr <-1% MONTHLY GROSS CHURN

>+1% NET CHURN

CAC PAYBACK NET NEW ARR

NET BURN

POST SERIES A: THE 1-1-1 RULE!



LAW 04: THE BEST PRODUCT IS FINALLY STARTING TO WIN

Source:docs.oracle.com


Source: Slack

38

Source:NewRelic

LAW 03: THE ASCENDANCY OF DEVELOPERS

40

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

2013 2014 2015 2016

Source: Reuters.

Uber Growth Global bookings, in billions

Mapping

Payments

Communication (Messaging/Voice)

Email

SSO

Customer Engagement

Storage $0.6 $2.9

$10.8

$26.1

www.bvp.com/cloud

APIS TO ACCELERATE YOUR BUSINESS

41

LAW 02: INSPIRE (AND HIRE) WITH VISION Source:iStock 42

Vision - The dream; a team's true north. Primary objective is to inspire and create a shared sense of

purpose throughout the company.

LinkedIn’s Vision: Create economic opportunity for every member of the global workforce

“”

www.bvp.com/cloud

INSPIRE (AND HIRE) WITH VISION

43


LAW 01: MOBILE IS EATING THE WORLD ....WIDE WEB!

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:eMarketer9/14(2008-2010),eMarketer4/15(2011-2015).Note:OtherconnecteddevicesincludeOTTandgameconsoles.Mobileincludessmartphoneandtablet.Usageincludesbothhomeandwork.Ages18+;ZmespentwitheachmediumincludesallZmespentwiththatmedium,regardlessofmulZtasking.KPCBInternettrends,2015

GlobalMobilePenetraAon1995-2014

GLOBALPENETRATION

1–>73%

45

kk

USE CASES THAT SPEND >50% AWAY FROM A DESKTOP

Healthcare EducaKon Retail

ConstrucKon FieldServices FieldSales

Events Agriculture SMBs

VER

TICA

L

PaperReplacement(Forms/Invoicing)

CollaboraKon

HORIZO

NTA

L


2010 2015 2020

CONTENT CONSUMPTION

CONTENT CREATION

The mobile version of the cloud app

Paper replacement

Collaboration/Communication

In the field working

???

WAVE 1 = CONTENT CONSUMPTION WAVE 2 = CONTENT CREATION


LIMITED REAL ESTATE = CONTEXTUAL AWARENESS IS THE FUTURE

DOWNLOAD NOW @ www.speakeasy.co 48

MESSAGING IS THE KILLER MOBILE EXPERIENCE

•  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

•  First example of success – Slack4

•  2M DAU •  570M paid users •  800M+ messages sent a month •  4k platform apps

Source: (1) Business Insider. (2) Velocify., (3) eWeek. (4) Slack.

49 www.bvp.com/cloud

BESSEMER’S 10 LAWS OF CLOUD COMPUTING

10 OnDemand

EVERYTHING:

09 GROW

(efficiently) or die.

08 Sales

efficiency is your oxygen.

07 Customer

SUCCESS = company success.

06 Control your

own destiny… CASH is king.

05 5 C's of cloud

finance.

04 Best

PRODUCT is finally starting

to win. .

03 The

ascendancy of Developers

02 Inspire (and hire)

with vision

01 MOBILE is eating the

world...wide web

www.bvp.com/cloud

51 51

@bdeeter @kshenster @ bessemervp

Available for Download: www.bvp.com/cloud

© 2016 Bessemer Venture Partners

“Don’t live up to your expectations, live up to your potential”

www.bvp.com/cloud