Cloud Days Ahead: The State of the Cloud Industry 2016. Download Full Report

September 7, 2016
Related Companies:

Twilio, Inc.

Twilio is a Communications Platform-as-a-Service providing Infrastructure APIs for developers and businesses to build scalable, Voice, VoIP and SMS apps in the cloud. In June 2016, Twilio went public (NYSE: TWLO).

Investment Date: 
2009
Geography: 
Read More

LinkedIn

LinkedIn operates the world's largest professional network.  BVP funded LinkedIn in 2006 and supported the company as it grew.  The company went public  in May 2011 (NYSE:LNKD).

Investment Date: 
2006
Exit Year: 
2011
Related Strategy: 
Geography: 
Read More

Shopify

Shopify provides e-commerce software to SMBs.  The company went public in May 2015 (NYSE: SHOP; TSX: SH)

Investment Date: 
2010
Exit Year: 
2016
Geography: 
Read More

Box

Box is a cloud-based enterprise content collaboration platform for people and businesses to share their documents from anywhere and from any device.  Box went public in January 2015 (NYSE: BOX).

Investment Date: 
2011
Exit Year: 
2017
Geography: 
Read More

Cornerstone OnDemand

Cornerstone OnDemand provides a comprehensive suite of talent-management solutions for learning, performance, compensation, succession and compliance management. It went public in March 2011 (NASDAQ: CSOD).

Investment Date: 
2007
Exit Year: 
2011
Related Strategy: 
Geography: 
Read More

DocuSign, Inc.

DocuSign makes it easy and fast to get documents signed with the world's largest electronic signature platform.

Investment Date: 
2011
Geography: 
Read More

Eloqua

Eloqua allows marketers to acquire customers, drive revenue and do what they do best: develop strong brands, build creative campaigns, and deliver compelling content.  Eloqua went public in August 2012 (NASDAQ: ELOQ) and was then acquired by Oracle (NYSE: ORCL) in December 2012.

Investment Date: 
2007
Exit Year: 
2013
Related Strategy: 
Geography: 
Read More

Lifelock

LifeLock, Inc. is an industry leader in identity theft protection. The company has been relentlessly protecting its members’ identities by providing consumers with the tools and confidence they need to help protect themselves from identity theft and to manage their credit.    Lifelock went public in October 2012 (NYSE: LOCK) and was acquired by Symantec in 2017.

Investment Date: 
2006
Exit Year: 
2017
Geography: 
Read More

Mindbody

Mindbody delivers business management software as a service to the wellness industry, including fitness, yoga, Pilates, salons, spas and martial arts businesses.  In June 2015, Mindbody went public (NASDAQ: MB).

Investment Date: 
2010
Exit Year: 
2017
Geography: 
Read More
Related Strategies:

As we head into the final stretch of 2016, Bessemer Venture Partners (BVP) took an in-depth look at the cloud industry in our second annual of the State of the Cloud report. It has been a banner year, with several of our predictions from last year coming to fruition while others remain in the early days. This report details the hottest trends to keep an eye on and our thoughts on the most important predictions for 2017 and beyond.

Trends to Watch

• Volatility slows: In early 2016 the public cloud market experienced almost a 50% pullback over the course of a month, and then a full recovery over the subsequent months. Bessemer’s Cloud Index (an index of 42 public cloud companies) hit its lowest market capitalization point in February 2016 at 3.1x revenue, after coming down from a high of 9.5x revenue in January 2014, and has since settled into levels slightly below historical averages at 4.9x revenue.

• Legacy software vendors and send M&A levels to all-time highs: Cheap public cloud multiples resulted in $50.4 billion of public company mergers and acquisitions (M&A) in just twelve months, 60% above the prior annual record of $30 billion in 2014. Microsoft MSFT -0.07%’s acquisition of LinkedIn LNKD +0.01% ($26.2) and  billion Oracle ORCL -0.15% acquisition ofNetSuite N +0.36% ($9.3 billion) headline the list as the #1 and #2 M&A transactions in the history of the sector. Almost a quarter of the total public cloud market cap was acquired by legacy software vendors who are finally admitting cloud is here to stay and are buying their way in to catch up.

• Private multiples still 2x their public comps but converging: Private cloud multiples for growth stage companies are currently trading at about 11.2x revenue, which is over a 2x premium to their public peers. However, this is down from over a 3x premium at the peak.

• Business model efficiency is now the primary valuation driver: BVP unveils the new 70-50-30 “Bessemer Efficiency Rule” to quantify the growth efficiency of a given cloud business. This reflects the change in public investor sentiment from “growth at all costs” to “efficient growth”. BVP’s power rule measures efficiency by taking the sum total of a company’s percent of annual recurring revenue (ARR) growth + percent free cash flow (FCF) margin.

A Look Back

As far as the state of our predictions from last year, we trumpeted the rise of industry cloud or “vertical SaaS.” This forecast was strongly validated by legacy software vendors who understood the value of investing in vertical market leaders. Twenty percent of this year’s public cloud acquisitions have been industry cloud leaders – the most notable of which include DealerTrack and Fleetmatics. We also predicted the growth of developer-centric businesses, which allow small and growing cloud businesses to accelerate their customer experience and product functionality. The two largest IPOs in the cloud market (Twilio and Atlassian) over the last year reflect this, and further validate that developers are here to stay and will become more central to the software purchasing process.

Looking Ahead

In this year’s report, we’ve unveiled our predictions for 2017 – the most important of which includes the increase momentum around enterprise mobile and the next wave of SaaS 2.0 applications disrupting SaaS 1.0. While cloud computing has only penetrated five percent of IT spend, SaaS applications in particular verticals are already disrupting their first wave counterparts. We have seen this most prominently in the human capital management (HCM) space with players like Taleo and SuccessFactors being replaced with next generation players.

We also anticipate incredible growth of Artificial Intelligence (AI) and Deep Learning within the enterprise. Consumer companies are blazing ahead to incorporate AI and deep learning into their products due to advantages in breadth and depth of data. We believe the enterprise use case is gaining momentum and will start integrating an AI layer to help humans interact with software more efficiently.

Just as we’ve seen in years past, the coming 12 months are sure to bring growth, change and undoubtedly a few surprises. We look forward to following the industry and seeing what new and interesting trends emerge, what predictions come true and where we’ll be this time next year.

Bessemer Venture Partners (BVP), has been investing in cloud computing for over a decade with over 100 cloud investments representing more than one third of the public cloud market capitalization with leaders including LinkedIn (LNKD), Twilio (TWLO), Shopify (SHOP), Box (BOX), Cornerstone (CSOD), DocuSign, Eloqua (ELOQ), LifeLock (LOCK), MindBody (MIND), and Wix (WIX).