May 20, 2019 · 35m · saastr
State of the Cloud 2019 from Bessemer Venture Partners
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
At SaaStr Annual 2019, Bessemer Venture Partners partners Christina Shen and Byron Deeter present their State of the Cloud report, analyzing the cloud market's exponential growth, unveiling the GRIT framework for operational resilience, and forecasting key technological trends.
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 0.1 Jason pushing back 0.0
speaking balance: gold is Jason, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 20:49 Christina playfully counters Byron on cash
Christina makes a lighthearted onstage tweak to co-presenter Byron's prior stance, reframing 'cash is king' to 'cash is queen'.
Hardest push from Jason ▶ 0:47 Keynote presentation formatThere is no host pushback in this episode because the session is delivered entirely as an onstage keynote presentation.
Biggest teaching moment ▶ 18:50 Retention compounding mathematicsChristina educates the audience on how a 15-point swing in net retention can add or destroy over a billion dollars in enterprise valuation.
Jason holds their own ▶ 0:47 Keynote format without hostThe episode is a presentation without host dialogue, leaving no instance of host counter-demonstration.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Jason as informed peer | Guest teaching | Guest disagreement | Jason pushing back | Why |
|---|---|---|---|---|---|---|
| Decade Retrospective: From Zero to 55 Cloud Unicorns | 0 | 0 | 0 | 0 | Byron delivers a solo keynote presentation tracking the growth from zero to 55 cloud unicorns over a decade, polling the audience along the way. No host is present or speaking during the presentation. | |
| Record Capital and Market Momentum in 2018 | 0 | 0 | 0 | 0 | Byron outlines 2018 capital market data, highlighting massive acquisitions like Red Hat and major IPOs. The keynote delivery is entirely unilateral with no host interaction. | |
| The BVP Cloud Index and Forbes Cloud 100 Growth Trajectory | 0 | 0 | 0 | 0 | Byron reviews the performance of the BVP Cloud Index and Forbes Cloud 100, admitting they hit the half-trillion mark two years earlier than predicted. No host participates. | |
| Navigating Volatility in a Record Bull Market | 0 | 0 | 0 | 0 | Byron introduces the theme of market volatility and hands the stage over to Christina Shen to analyze the decade-long bull run. The monologue continues without host engagement. | |
| Resilience Tactic 1: Annual Recurring Revenue Growth Benchmarks | 0 | 0 | 0 | 0 | Christina presents Bessemer's Good-Better-Best ARR growth benchmarks from $1M to $100M. The segment is an uninterrupted keynote lecture. | |
| Resilience Tactic 2: Retention and Land-and-Expand Economics | 0 | 0 | 0 | 0 | Christina outlines how net retention compounds enterprise valuation, drawing examples from Twilio and SendGrid. There is no host involvement. | |
| Resilience Tactic 3: Cash Management and Strategic Financing | 0 | 0 | 1 | 0 | Christina jokingly counters Byron's previous advice that cash is king by declaring cash is queen and emphasizing runway buffering. The interaction is playful rhetorical framing within a keynote. | |
| Resilience Tactic 4: Targeted Spend and Capital Efficiency | 0 | 0 | 0 | 0 | Christina defines capital efficiency metrics and introduces the comprehensive GRIT score framework for founders. Monologue keynote format continues. | |
| 2019 Predictions: AI Coworkers and Product-Led Software | 0 | 0 | 0 | 0 | Byron returns to present 2019 investment predictions focusing on human-AI pairing and product-led software tooling. Unilateral presentation with no host participation. | |
| 2019 Predictions: Open Source, Mobile SaaS, and Low-Code | 0 | 0 | 0 | 0 | Byron covers open-source monetization, vertical mobile SaaS, and low-code/no-code platforms before closing on the trillion-dollar market cap prediction. Entirely monologue presentation. |
Statements from this episode (27)
Deeter: There were zero private cloud unicorns in 2008
“Which probably shouldn't be a surprise, because in the entire cloud industry, there were exactly zero private cloud unicorns. In fact, in the history of the entire cloud industry, there had been exactly zero. Just 10 years ago.”
Deeter: A record 55 private cloud unicorns exist as of 2019
“In total, in fact, 55 private cloud unicorns exist today. The highest in history.”
Deeter: Amazon earnings release referenced AWS 78 times versus twice for retail
“78 times in the AWS, ah, AWS was referenced in the Amazon press release and earnings announcement. Twice for retail.”
Deeter: Cloud acquisitions exceeded $90B in 2018 as legacy vendors bought in
“If we think back on 2018 alone, over ninety billion dollars of acquisition activity as the legacy vendors tried to buy their way into this space to catch up with the wave that, ah, the innovators have been leading.”
Deeter: IBM bought Red Hat for $33B because it was late
“Thirty-three billion dollars for Red Hat. Because IBM was jammed, they were late to the cloud party, and hybrid cloud is their attempt to be relevant again in the cloud universe.”
Deeter: Total combined capital into cloud in 2018 doubled the 2015 record
“Fantastic names that in aggregate, when you put together the three ways to buy stocks, public IPOs, private venture capital dollars, and then outright acquisitions, last year was a record in terms of total combined capital by a large multiple. In fact, 2015 wa…”
Deeter: 44 public cloud companies reach $690B total market cap
“In fact, we sit here today at six hundred and ninety billion dollars among these 44 pure play public cloud companies.”
Deeter: Public cloud industry will cross $1T market cap in a few years
“And if you extrapolate this, take 10, take a third off the growth rate, 10 full points of CAGR, we still have a line of sight to crossing that trillion dollar milestone in the next few years as an industry.”
Deeter: Top 100 private cloud companies represent $175B in aggregate value
“And among just the top 100 private cloud companies, there's a hundred and seventy five billion dollars of market cap among the names that you know well.”
Deeter: Private cloud unicorns outnumber public ones 55 to 44
“Again, for the first time ever, there's more private cloud unicorns at 55 than public cloud unicorns on our index at 44.”
Deeter: December 2018 Was the Worst December in NASDAQ History
“December alone was the single worst December in the entire history of the NASDAQ index.”
Deeter: January 2019 Was the Best January for Market Indices in 30 Years
“January was the single best January in 30 years for the market indices.”
Shen: The 2009-2019 Bull Market Is the Longest in S&P 500 History
“The longest bull run is actually right now. Starting after oh nine until today, it's been roughly 10 years of a bull market, which has just been incredible. If you think about the history of the S&P 500, going back over, ah, 70 years, this is the longest bull …”
Shen: Slack scaled from $1M to $100M ARR in under three years
“Slack got there actually pretty quickly, and they're not quite a public company yet, but as we all know, they've filed for their direct listing quite soon, and they got there in just under three years.”
Shen: Median public cloud company scales $1M to $100M ARR in seven years
“Well, we look at all the public companies, about 55 in total. The median got there in about seven years. The top quartile companies got there in about five years, and the bottom quartile, which were all very successful cloud companies, took about 10 years to g…”
Shen: Mid-market SaaS should target 80-90% gross and 90-120% net retention
“If you're selling to the mid-market, let's say, you've got average deal sizes that are, let's say, 12 to 50 K a year, you're really targeting an 80 to 90% gross retention, and a 90 to a 120% net retention.”
Shen: Cloud multiples peaked at 10x ARR in March 2014
“Now what's really interesting is the peak of the market was actually March, 2014, where companies are trading at 10 times ARR multiple.”
Shen: Public cloud multiples are trading around 10x in 2019
“Well, today, revenue multiples are quite hot. It's a great time to fundraise. Roughly at 10 times revenue multiples in the public markets.”
Shen: Efficient businesses receive outsized valuation rewards in flat and bear markets
“Ah, valuation is correlated to revenue growth, but in all other times, whether it be flat or bare markets, it's actually efficient businesses that are unfairly rewarded for their efficiency levels, and so we believe it's best to solve for an efficient business…”
Shen: Early-stage cloud companies should target a 0.5x to 1.5x efficiency score
“What we see across our portfolio and in the industry is you want to be between .5 and a 1.5 X ratio.”
Shen: Shopify grew from $12M to $24M ARR burning only $2M
“Well, if you take a look at Shopify, they were twelve million ARR in year one, and grew to twenty four million ARR in year two. And so they had an increase of twelve million in net new ARR, but only burned two million to do it. And so they had a six X BVP effi…”
Shen: Resilient cloud companies should target a GRIT score above 3
“So if you look at your grit score, we recommend that good, better, best grit score should be between three and six, and even higher than six for the best grit companies.”
Shen: Twilio reached 300% growth and 160% net retention at Series A
“Twilio is a great example when they were a series A company of a retention driven score. And so they had a 300% growth, 160% net retention, two years of cash burn left, and a 1.5 X efficiency. So when you sum that all together, they had a phenomenal grit score…”
Deeter: AI Productivity Will Come From Human-Machine Pairing, Not Displacement
“You hear a lot about this idea of worker displacement around automation. Ah, we see the other side of this, though. The AI and machine learning and, ah, productivity gains that are coming in particular from this human and machine pairing. In areas where you've…”
Deeter: Software Category for Product Teams Is Opening Up Rapidly
“And yet, historically, their product teams, internally, have had strong, very talented resources, but very little technology to accomplish their goals. And very little product for the product teams, ironically. We've seen an explosion of tools and technologies…”