Oct 14, 2021 · 43m · saastr
State of the Cloud 2021 with Bessemer Venture Partners | SaaStr Software Community
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this SaaStr Annual keynote, Bessemer Venture Partners investors Mary D'Onofrio, Byron Deeter, and Elliott Robinson present the 2021 'State of the Cloud,' analyzing macro industry growth, foundational scaling laws for software startups, and emerging mega trends driving the next generation of cloud unicorns.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
Jason as informed peer 0.0 Guest teaching 0.0 Guest disagreement 0.0 Jason pushing back 0.0
speaking balance: gold is Jason, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 11:30 Calling out historic VC skepticism
Byron contrasts modern cloud dominance with early legacy VCs who dismissed SaaS as a foolish business model that would never cross a billion dollars in ARR.
Hardest push from Jason ▶ 0:06 Presentation setupThe session is delivered as an uninterrupted presentation on stage without host pushback.
Biggest teaching moment ▶ 27:20 Defining the Cash Conversion Score frameworkMary articulates the exact formula and rationale behind the Cash Conversion Score as a primary proxy for cloud company capital efficiency and IRR.
Jason holds their own ▶ 0:06 Keynote formatThe session is a presentation delivered entirely by the Bessemer partners without host interjections.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Jason as informed peer | Guest teaching | Guest disagreement | Jason pushing back | Why |
|---|---|---|---|---|---|---|
| Welcome to SaaStr and State of the Cloud Agenda | 0 | 0 | 0 | 0 | Keynote presentation opening by the Bessemer team welcoming the SaaStr audience and laying out the agenda; the podcast host does not participate on stage. | |
| Public Cloud Market Growth and the EMCLD Index | 0 | 0 | 0 | 0 | Byron Deeter presents data on the public cloud market crossing $3T market cap and the performance of the BVP EMCLD Index without host dialogue. | |
| Private Cloud Surge, Unicorn Velocity, and VC Records | 0 | 0 | 0 | 0 | Byron breaks down private cloud unicorn creation velocity and record VC deployment, sharing an anecdote about early cloud skeptics doubting Salesforce. | |
| Law #1: Winning Market Scale and Unlocking Second Acts | 0 | 0 | 0 | 0 | Elliott Robinson walks through Law #1 on market scale and how leaders like Shopify, ServiceTitan, and Toast unlock second acts via embedded payments. | |
| Law #3: Sales Learning Curves and Modern Go-to-Market | 0 | 0 | 0 | 0 | Elliott details Law #3 covering sales learning curves from founder-led sales to scaling, alongside modern go-to-market strategies like PLG and cloud marketplaces. | |
| Law #5: The Six C's and Private Valuation Multiples | 0 | 0 | 0 | 0 | Mary D'Onofrio presents Law #5 introducing the Six C's and the Cash Conversion Score, followed by analysis of expanding private ARR valuation multiples. | |
| Cloud Predictions: Unbundling Offices, SMB SaaS, and DEI Tools | 0 | 0 | 0 | 0 | Elliott outlines forward-looking cloud predictions covering virtual office unbundling, SMB digitization, and dedicated DEI software tools. | |
| Cloud Predictions: Data Infrastructure, No-Code, and Vertical SaaS | 0 | 0 | 0 | 0 | Mary and Byron close out the keynote with predictions on data infrastructure, citizen developer tools, fintech embedding, and vertical SaaS expansion. |
Statements from this episode (19)
D'Onofrio: Tech unicorn birthrate has accelerated beyond expectations
“The unicorn birthrate has accelerated beyond our wildest dreams.”
Deeter: Average public cloud company returned 12x over eight years
“12 x is the return profile if you bought just the average public cloud company.”
Deeter: Cloud leaders are superseding FAANG as tech growth drivers
“Our thesis internally is that those horizons and the growth rates of those markets are starting to pull back, and that you see a changing of the guard. And it's really the cloud basket, and we pulled out six names in particular with Microsoft, Twilio, Shopify,…”
Deeter: The next wave of SaaS businesses will define the 2020s
“What you see is this next mountain of SaaS businesses being created that we believe will be the story of the next decade.”
Deeter: Corporate America spends only a minority of software budget on cloud
“Corporate America still has a minority of their software spend going into cloud.”
Deeter: 2021 Forbes Cloud 100 comprised entirely of unicorns for first time
“That group, for the first time in history, was comprised of only unicorns this year.”
Deeter: Cloud unicorns grew 74% year-over-year at over one per week
“And so, in just a one year time period, there was a 74% increase in cloud unicorns, and almost, ah, a new unicorn in the industry is being created per day right now, and in the cloud industry, it was at a rate of more than one per week.”
Deeter: 2021 Forbes Cloud 100 accounts for over $500B in aggregate value
“In the cloud 100 alone, that group comprised on their own, not included in that public market cap graph, almost another, or over another half trillion in market cap.”
Deeter: 2021 will break all records for venture dollars invested in cloud
“We will break all records this year in terms of dollars in.”
Deeter: Canva and other private cloud companies will cross $1B ARR
“There are private cloud companies that now have line of sight, or in Canva's case and a few others, will be crossing the billion dollar ARR mark while still private.”
Robinson: Cloud category leaders typically capture two-thirds of market share
“Typically in a category leader in the cloud, you're going to amass somewhere around 66% or two-thirds of the market share, but scale is also defined by executing a product strategy that allows you to set the pace of innovation, not just for yourself and your c…”
Robinson: Zoom has captured more than 64% market share in video conferencing
“And they've now achieved more than 64% of market share, and it continues to grow.”
Robinson: Startups should not scale sales until reps cover fully burdened costs
“You do not want to even think about moving to the next phase. Until those reps, based on their booking and sales yield, are covering the fully board cost of the sales org.”
Robinson: 74% of B2B software buyers are using cloud marketplaces
“They ran a survey recently and they found that 74% of B to B SaaS Software buyers have either already bought in the cloud marketplace or plan to do so in the next 12 months, and that represents billions of dollars of transaction in a marketplace where your buy…”
D'Onofrio: Portfolio companies with 1x Cash Conversion Score yielded 120% IRR
“Across the Bessemer portfolio, companies that had a cash conversion score of one X at the time of financing actually yielded an internal rate of return of a 120%.”
D'Onofrio: Cloud 100 average multiples grew from 9x to 34x
“The average cloud 100 company, so the top cloud companies in the world at any one moment, had a nine X ARR multiple in 2016, increasing 270% until 2021, where it earned a 34 X multiple.”
D'Onofrio: Cloud 100 average growth rates rose from 60% to 90%
“Again, out of the best cloud companies in the world, it was, they were growing an average of 60% in 2017, increasing to 90% in 2021.”
D'Onofrio: Data infrastructure and fintech held highest 2021 Cloud 100 value
“What we've seen in the last 12 months is that these two segments have grown dramatically thanks to COVID tailwinds and the broader trends towards cloud adoption, and these two segments actually represented the highest total valuation of subsectors on this year…”