STATE OF THECLOUD REPORT 2017Byron Deeter, Kristina Shen, Anna Khan

w w w . b v p . c o m / c l o u d

2016WOWZAWHAT A YEAR

3Source: Uber

4Source: New York Stock Exchange

5Source: Make A GIF

6Source: Dean DeLisle, Blog Post

Source: 43 companies in BVP Cloud Index as of 02/01/2017. CapIQ

A ROCKY START TO 2016

BVP Cloud Index (1/1/2016 – 2/12/2016)43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @ 02/01/2017

50%

60%

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90%

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110%

120%

1/1/

2016

1/3/

2016

1/5/

2016

1/7/

2016

1/9/

2016

1/11

/201

61/

13/2

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1/15

/201

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1/19

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62/

2/20

162/

4/20

162/

6/20

162/

8/20

162/

10/2

016

2/12

/201

6

BVP Index Nasdaq S&P Dow Jones

BVP Cloud Index (2/12/2016-2/3/2017)43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @ 02/03/2017

Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ

...BUT THE MARKET COMPLETELY REBOUNDED IN 2H 2016

BVP Cloud Index (1/1/2016 – 2/12/2016)43 Publicly Traded Cloud Companies Indexed as of Jan. 2016 | @ 02/03/2017

50%

60%

70%

80%

90%

100%

110%

120%

1/1/

2016

1/3/

2016

1/5/

2016

1/7/

2016

1/9/

2016

1/11

/201

61/

13/2

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1/15

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61/

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1/19

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61/

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1/23

/201

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/201

62/

2/20

162/

4/20

162/

6/20

162/

8/20

162/

10/2

016

2/12

/201

6

BVP Index Nasdaq S&P Dow Jones

50%

60%

70%

80%

90%

100%

110%

120%

BVP Index Nasdaq S&P Dow Jones

BVP Cloud Index43 Publicly Traded Cloud Companies Indexed as of Jan. 2011 | @ 02/03/2017

JUST A SMALL BUMP IN A CRAZY RIDE UP!

50%

100%

150%

200%

250%

300%

350%

1/1/

2011

3/1/

2011

5/1/

2011

7/1/

2011

9/1/

2011

11/1

/201

1

1/1/

2012

3/1/

2012

5/1/

2012

7/1/

2012

9/1/

2012

11/1

/201

2

1/1/

2013

3/1/

2013

5/1/

2013

7/1/

2013

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2013

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/201

3

1/1/

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3/1/

2014

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2014

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2014

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/201

4

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3/1/

2015

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2015

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/201

5

1/1/

2016

3/1/

2016

5/1/

2016

7/1/

2016

9/1/

2016

11/1

/201

6

1/1/

2017

BVP Index Nasdaq S&P Dow Jones

Source: 43 companies in BVP Cloud Index as of 02/03/2017. CapIQ

0

5

10

15

20

25

30

35

40

45

50

2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of tech IPOs on U.S. Stock exchanges

Source: Bloomberg*Tech IPOs less than $5MM are not included | *Listings for this year are through Nov 15

FEWEST TECH IPOS SINCE FINANCIAL CRISIS

company 2016-2017

$2.9B

$1.4B

$1.3B

$592M

$492M

company2015

$6.2B

$4.3B

$2.3B

$989M

$826M

$694M

$331M

$6.7B$15.6BTotal

Source: CapIQ

Total

TOTAL CLOUD IPOS IN 2015-2017

company 2016-2017

$2.9B

$1.4B

$1.3B

$592M

$492M

company2015

$6.2B

$4.3B

$2.3B

$989M

$826M

$694M

$331M

$6.7B$15.6BTotal

5 OF 12 CLOUD IPOS ARE BVP-FUNDED

Source: CapIQ

Total

M&A From 2009 to Today

4X MORE M&A 2016 THAN ANY OTHER YEAR

$1,676 $2,279 $5,627

$13,708 $8,889

$14,921 $17,655

$60,713

$3,700

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: CapIQ

PUBLIC CLOUD COMPANIES 2009 – 2017

Source: CapIQ and public fillings. Note: >$300BN market cap also includes 25 companies that are either public companies that are <$1bn market cap or large private acquisitions >$500m market cap.

SalesforceLinkedIn

WorkdayServiceNow

NetsuiteConcur

VeevaAtlassian

Ultimate Software Athenahealth

ShopifyAriba

DealertrackSuccessfactorsAppdynamics

Tableau

$59.9

$29.0

$21.1

$16.0

$9.3

$8.3

$6.2

$6.2

$5.9

$5.4

$5.2

$4.6

$4.0

$3.9

$3.7

$3.9

XeroTaleo

LogMeInMarketo

RightnowNew Relic

RingCentralOmniture

BlackboardDigital Insights

Cvent2U

ResponsysQualys

BlacklineKenexa

$1.9

$1.9

$1.8

$1.8

$1.8

$1.8

$1.8

$1.7

$1.7

$1.7

$1.7

$1.6

$1.6

$1.6

$1.4

$1.4

>$300BN Market Cap

ProofpointMedidata Solutions

LogMeInRealPage

DemandwareTwilio

Exact TargetWix

FleetmaticsLifelock

CornerstoneOnDemandBox

SkillsoftZendeskHubspot

$3.7

$3.3

$3.2

$2.9

$2.8

$2.7

$2.6

$2.6

$2.4

$2.4

$2.4

$2.3

$2.3

$2.3

$2.0

Coupa SoftwareBroadsoft

SPS CommerceConstant Contact

MindbodyEloqua

$1.3

$1.3

$1.2

$1.1

$1.0

$1.0

40% OF MARKET CAP ACQUIRED

Source: CapIQ and public fillings. Note: >$300BN market cap also includes 25 companies that are either public acquisitions <$1bn market cap or large private acquisitions >$500m market cap.

SalesforceLinkedIn

WorkdayServiceNow

NetsuiteConcur

VeevaAtlassian

Ultimate Software Athenahealth

ShopifyAriba

DealertrackSuccessfactorsAppdynamics

Tableau

$59.9

$29.0

$21.1

$16.0

$9.3

$8.3

$6.2

$6.2

$5.9

$5.4

$5.2

$4.6

$4.0

$3.9

$3.7

$3.9

XeroTaleo

LogMeInMarketo

RightnowNew Relic

RingCentralOmniture

BlackboardDigital Insights

Cvent2U

ResponsysQualys

BlacklineKenexa

$1.9

$1.9

$1.8

$1.8

$1.8

$1.8

$1.8

$1.7

$1.7

$1.7

$1.7

$1.6

$1.6

$1.6

$1.4

$1.4

>$300BN Market Cap

ProofpointMedidata Solutions

LogMeInRealPage

DemandwareTwilio

Exact TargetWix

FleetmaticsLifelock

CornerstoneOnDemandBox

SkillsoftZendeskHubspot

$3.7

$3.3

$3.2

$2.9

$2.8

$2.7

$2.6

$2.6

$2.4

$2.4

$2.4

$2.3

$2.3

$2.3

$2.0

Coupa SoftwareBroadsoft

SPS CommerceConstant Contact

MindbodyEloqua

$1.3

$1.3

$1.2

$1.1

$1.0

$1.0

MORE THAN MEETS THE EYE

$400B Market Cap Creation in Just the Top 200 Companies

$180BNPublic

$129BNMajor Acquisitions

$104BNTop 100 Private

Cloud Companies~$400BMARKET

CAPTop 200 companies

1,000s of Private Cloud Companies

Source: SLWA Blog

HUGE BACKLOG OF PRIVATE COMPANIES >$100BN MARKET CAP IN CLOUD 100

HOW DO I SCALE?

HOW MUCH SHOULD I

BURN?HOW FAST

SHOULD I BE GROWING?

KEY QUESTIONS FROM TOP PRIVATE CEOS

HOW FAST SHOULD I BE GROWING?

To Kristina Shen

THE NEW GROWTH STANDARD?

8 YEARS TO $1B

Dropbox is the Fastest SaaS Company to $1 Billion Revenue Run Rate

Years from $1M to $10M ARR

HOW DO THE TOP CLOUD COMPANIES PERFORM?

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$1

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$8

$9

$10

0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs

ARR

(in

$M)

Source: CapIQ, internal sources and company announcements..Note: Use quarterly revenue times four as a proxy for ARR.

$0

$1

$2

$3

$4

$5

$6

$7

$8

$9

$10

0.5 Yr 1 Yr 1.5 Yr 2 Yrs 2.5 Yrs

ARR

(in

$M)

Years from $1M to $10M ARR

HOW DO THE TOP CLOUD COMPANIES PERFORM?

Source: CapIQ internal sources and company announcements..Note: Use quarterly revenue times four as a proxy for ARR.

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1 2 3 4 5 6 7 8 9 10 11 12 13 14

$ AR

R (i

n M

)

Years

YEARS FROM $1M TO $100M ARR

Source: CapIQ, internal sources and company announcements..Note: Use quarterly revenue times four as a proxy for ARR. Note: Assuming it takes 24 months from founding to $1M ARR if do not have actual data.

YEARS FROM $1M TO $100M ARR

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

1 2 3 4 5 6 7 8 9 10 11 12 13 14

$ AR

R (i

n M

)

Years

5.3 yrsTop 25%

Source: CapIQ and internal sources. Includes 46 public or recently acquired public companies from the BVP Cloud Index. Excludes companies who reached $100M ARR prior to public reported periods.Note: Assuming it takes 24 months from founding to $1M ARR if do not have actual data. Use quarterly revenue times four as a proxy for ARR.

Public Cloud Companies

7.3 yrsMedian

10.6 yrsBottom 25%

From $1mm ARRBVP GROWTH BENCHMARK

BEST

GOOD

BETTER

Years to $10M ARR

Years to $100M ARR

3 Years

7 Years

4 Years

10 Years

2 Years

5 Years

HOW MUCH SHOULD I BURN?

DEFINING THE EFFICIENCY SCORE

% Annual Revenue Growth

Rule of 40 += % Profit

Margins

DEFINING THE EFFICIENCY SCORE

% Annual Revenue Growth

Rule of 40 += % Profit

Margins

* Burn defined as FCF for this analysis

% Annual CARR

Growth

Efficiency Score += % Burn*

SHOPIFY 2013 GROWTH-DRIVEN EFFICIENCY SCORE

Power

112% -4% 108%

% Burn*% Revenue

Growth

=

VEEVA 2013 FCF-DRIVEN EFFICIENCY SCORE

Power

62% 19%

% Burn*% Revenue

Growth

+ =

MULTIPLE SUCCESSFUL MODELS OF EFFICIENT GROWTH

81%

+

* Burn defined as FCF for this analysis

DIFFERENT EFFICIENCY SCORES AT DIFFERENT STAGES

Source: 43 companies in the BVP Cloud Index, CapIQNote: Average efficiency score of the 43 public cloud companies. Efficiency score defined as % annual CARR growth + % FCF margin.

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

73%

TIME

56% 53%45%

38% 35% 32%

THE BVP EFFICIENCY RULE (>$30M ARR)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

EXPANSION($30-60M ARR)

% C

AR

R G

row

th+

% F

CF

Mar

gin

70%50%

30%

IPO(~$100M ARR)

PUBLIC($150M+ ARR)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% R

ev. G

row

th +

% F

CF

Mar

gin

70%50% 30%

EXPANSION($30-60M ARR)

IPO($60-100M ARR)

PUBLIC($100M+ ARR)

?

THE BVP EFFICIENCY RULE

THE BVP EFFICIENCY RULE (<$30M ARR)

BVP Efficiency Score

Net New ARR

Net Cash Burn

> 1For Example:

$10

$25

($10)

Ending ARR Net Burn

($ in M)

$15M (= $25- $10)

$10M= 1.5

BVP Efficiency Score

2016 2017

HOW DO I SCALE?

CUSTOMER ACQUISITION COST CAC PAYBACK

CAC PAYBACK PERIOD(months)

TOTAL S&M COSTS LAST QUARTER

=NEW CMRR ADDED

LAST QUARTER X

% GROSS MARGIN

CAC COCKTAIL

CACCOCKTAIL FORMULA SALES

# of AEs

QuotaInside sales

Field /enterprise sales

Ramp timeInside sales

Field sales

Attainment rate

$400k-$800k$1-1.5m

1-3mo6-9mo

70-90%

LEAD/OPPORTUNITY GENERATION# of SDRs

Opportunities/SDR/month

Close rate

Marketing Spend (% of Total S&M)

Inside/field sales model

Freemium/internet sales

15-25

15-30%

25-33%33-67%

Find the model that works for youUNDERSTANDING YOUR SALES MODEL

SMB EnterpriseMidmarket

12 Mos 18-24 Mos3-6 Mos

AVG ACV

CHURN / UPSELL

CAC PAYBACK

$12 - $50K<$12k $50K+

1% Monthly<3% Monthly <1% Monthly, Upsell

MULTIPLE WAYS TO BE SUCCESSFUL: UPSELL MAJOR DRIVER

12 Mo CAC Payback, 100% Retention 24 Mo CAC Payback, 115% Retention

Note: Assumed 80% gross margin, and no other expenses.

Revenue

Cash Flows (Gross Profit – S&M)

S&M Costs

Year 1 Year 2 Year 3 Year 4Year 1 Year 2 Year 3 Year 4

$10

$8

$0

$10 $10 $10$8

$16

$24

$10

$8

$16

$12

$1

$13 $12$15

$24Result in same cash flow after 4 years

2017 PREDICTIONS

ADVANCES IN AI ARE AWESOME

...BUT STILL DEPENDENT ON HUMANS.

THE YEAR OF HUMAN ASSISTED AI

SECURITY

Estimated 1mm unfilled cybersecurity jobs available

SALES & MARKETINGCUSTOMER SUPPORT

50% of customer service agents failed to answer a

consumers questions

HEALTHCARE

#1

$12.8B per year on sales acceleration technology

40% of healthcare providers are expanding IT

budgets

Mapping

Payments

Communication(Messaging/Voice)

Email

SSO

Customer Engagement

Storage

Enterprise Search

Files

Background Check

Collaboration

IaaS

User Management

Identification

Social

AI

Banking

Location

Healthcare Security/Fraud

Test/Monitor

APIS WILL SERVE AS THE BACKBONE FOR A MAJORITY OF SOFTWARE INFRASTRUCTURE#2

COST OPTIMIZE YOUR PUBLIC

CLOUD INFRASTRUCTURE

AS YOU GROW

ELECTRONIC CALCULATOR

4

7GT

75

8

+ - MRC M- M+

-6 ×

9 %

BASE INSTANCE+ STORAGE COST

+ PROVISIONED IOPS FOR DATABASES+ LOCAL SSD

+10% FOR PREMIUM SUPPORT+10% FOR DEDICATED INSTANCES OR HOSTS

=TOO EXPENSIVE

ARCHITECT FOR SUCCESS IN AN INFINITE COMPUTE WORLD

#3

FIELD SERVICES

VER

TIC

AL

HO

RIZ

ON

TAL

CONSTRUCTION RETAIL SALES

EDUCATIONHEALTHCARE SAFETY / COMPLIANCE

AGRICULTUREEVENTS SMBS

COMMUNICATION

PAPER REPLACEMENT (FORMS/INVOICING)

MOBILE UNLOCKS NON-DESK WORKER PRODUCTIVITY

#4

NPS EVERYTHING#5

CUSTOMERS EMPLOYEES

U.S. Labor Force by Generation, 1995-2015

Source of Graph: Pew Research Center tabulations of monthly 1995-2015. Current Population Surveys, Integrated Public Use Microdata Series (IPUMS)Source of Data: Fast Company, Rob Hernandez, Future of Work; Forbes, Jeanne Meister, Future Workplace “Multiple Generations @ Work” Survey; PwC, Millennials at Work.

MILLENNIALS ARE A MAJORITY OF THE US WORKFORCE

think the performance review process is flawed69%

“feel in the dark” about how their managers think they are performing74%

expect to stay in job for less than 3 years91%

ranked personal development as #1 reason for accepting a job65%

In millions

Boomers

Gen Xers

Silents

Millennials

DIVERSE TEAMS WIN#6

of companies funded by American VCs had “one core foreign born team member such as CEO or

CTO.”

75%

of U.S. Billion-Dollar startups were founded by immigrant.s

51%

of top 10 companies in silicon valley by NASDAQ market cap

are run by women.

20%

profitability increase when adding 30% more female talent

to a company.

15%

THE SCREENLESS SOFTWARE MOVEMENT

#7

7KAlexa/

Echo has

skills

THE MARKET HAS FALLEN IN LOVE WITH VOICE

8.2MMAlexa/Echo‘s sold

since late 2014 intro

Source: Consumer Intelligence Research Partners

11.30%9.50%

18.70% 19.00%

41.60%

When did you first start using voice search/commands?

Source: MindMeld, SEL Blog by Greg Sterling 2016

Within the last 6 monthsBetween 6 months and 1 year agoBetween 1 to 2 years agoBetween 2 to 3 years agoMore than 3 years ago

20%…of queries on the Google

mobile app and android devices are voice

searchesSundar Pichai

Google I/O KeynoteMay 2016

VOICE

BVP’S 7 PREDICTIONS FOR 2017

1

APIs will serve as the backbone for a majority of software infrastructure

The screenless software movement

Mobile unlocks non-desk worker productivity

NPS everything

Architect for infinite scale without infinite spend

The year of human assisted AI

Diverse teams win

2

3

4

5

6

7