The State of the Cloud: 2021 with Bessemer Venture Partners | SaaStr Software Community

Last year there were seven cloud IPOs in total. Bessemer was an investor in four of them.

Our secret sauce is our road mapping process. The firm will have 20 to 30 active roadmaps.

Part of our predictions that used to be internal roadmaps we now expose to the world. We're thrilled to be unveiling our annual State of the Cloud report. We're going to try to talk about where we've been at and then where we think we're headed. You essentially now have a playbook to how to go out and build your great cloud business. You now have a peer group and a support group, not just through online communities like Saster, but through a peer CEO set that is absolutely world class. You're not alone. You don't need to figure this all out for the first time, as people did 20 years ago.

The two things that I love the most outside of just the general value Prop 1, it's the story and the product is personal to the founder.

Just understanding where you differentiate and how you're going to win. Being able to clearly articulate that is really key.

We can't wait to see what you're going to build. Keep kicking ass. Thank you. Hello Sastor Pepys, it is so good to be with you again this year despite the circumstances and Elliot and I are thrilled to livestream to all of you thousands around the world in different places, in different time zones.

Hey everyone, thanks for having us back. Really looking forward to the discussion today.

Today we're joined by our third partner and newest partner at Bessemer, Mary. Welcome. Mary, hi.

Thanks so much for having me. Great to be here.

So we've been working hard on this and typically we would be launching this live with thousands of you in the audience and each year that's something that frankly, we really look forward to. The energy, the feedback, the interactions in the halls and over drinks. So we're going to have to ad lib a little bit for the obvious circumstances, but one of the benefits of doing it this way is that we can see simultaneously make a bunch of digital content available to you. And so at the end of the presentation, we'll talk through where you can download the report, get videos, get follow ups and really build on all of the content here. But it was just over a year ago that Elliot and I were doing this, which is we did the quick pivot from trying to be on live stage at Saster and recording what became then our first online and on demand version of State of the Cloud. Little did we know that what we Thought was going to be days or maybe weeks has turned into months. But we're always evolving and iterating and that's really what the new normal has become in the COVID world.

One of the things that we spend a lot of time with as venture capitalists is trying to predict the future and doing a bunch of scenario planning. So the upside, the downside, I guess the wipeout or the black swan as many venture capitalists call it. But the one thing that we definitely didn't predict was a global pandemic. Just as a fun fact, we had done all of our predictions and put together the slides for last year, Save the Cloud before COVID took hold. And we just had to adjust on the fly as Byron talked about. But one of the things that we are really proud of in terms of predicting the future was in last year's predictions we talked about the future of work will be remote. Our partner, Talia Goldberg, spends a lot of time and really spearheads our work in this sector. We had highlighted some of the really interesting companies, whether it's Miro, whether it was Zoom, for example, or all the collaboration tools. We are really excited about our prediction last year. And of course we're all living in this new normal where now we're doing State of the Cloud together over Zoom.

And before we were able to settle into any sort of a new normal, we wondered if it would even be possible. Just after shelter in place, the shelter in place order took effect. The stock market reflected the uncertainty we were all feeling. And In March of 2020, we saw the major indices each drop over 30% over the course of three weeks as the market experienced its steepest crash in history. During this time, as venture capitalists and just as people, we saw the beginning of fundamental and abrupt changes to the way we all live and work.

So we were all adjusting to some version of this new normal. And certainly it changed how we work, live and play. This is a scene from a park that no one would have possibly imagined a year ago as we were doing this. Each year at Bessemer, we host an event in San Francisco that is a cloud focused event and even that had to evolve. This is our Cloud 100 group and an example of a session that normally would have been in person moved to digital. We are fortunate to still have a great lineup and a worldwide attendee group, but certainly even venture firms are having to adjust to what this means. This is actually a shot of our recent Monday meeting. Everyone giving you all hello from the Bessemer Partnership around the world and Indeed, our meetings too have now gone to hybrid and evolved formats. So as we like to say welcome to the new normal, some versions of this will persist and there's a lot of efficiency gains and even some broader gains that we do think will persist and will benefit from the cloud enablement and the cloud tailwinds that our industry has been experiencing. And don't get me wrong, I'm as eager as all of you to get back to my office and to other people's homes and to meet entrepreneurs in person. But a lot of things that have accelerated we think will reflect across long term tech trends. As we go into things today, you'll see a lot of industries this is an example of telehealth that has skyrocketed given the cloud and Covid combination. A 300x increase in telehealth visits. Today we're going to talk about a lot of these things that have accelerated and what that means for the economy and what that means for our cloud industry. Then Mary's going to dive in and share some insights on the private cloud marketplace and companies from her original analysis. Elliot's going to talk about some of the go to market lessons that you're all probably wrestling with and iterating on and discovering on your own in some ways. But we're going to try to distill those best practices and share that back out. Then of course, like every year, we will share with you our seven predictions for 2021 for the cloud industry. But let's dive into some more industries specifically and obviously healthcare. Here is the ultimate in person industry as one very clear example. This is an example from one of our portfolio companies, Hinge Health. But also as parents out there, let's talk about education. Myself, I'm a parent of three, all of whom are now adjusting to some form of hybrid learning. And Perhaps not surprisingly, 93% of households are now doing the same. Whether it's the Zoom tools or the LMS solutions like Canvas or Portfolio Company as well like brightwheel, which is enabling preschools, daycare centers and camps to use technology to help their teachers and families communicate and connect while also supporting the back offices of these businesses. And then next to the frontline health care workers, perhaps no industry has been more impacted or no class of business has been more impacted than the SMB and small business workers out there. Certainly the restaurant industry front and center as brick and mortar businesses are under extreme pressure. And yet companies like Toast have really helped them evolve and adapt to the new mobile ordering and online payments world. The construction Industry is another example of this, in some ways also the ultimate in person physical industry. And yet these businesses as well are now moving to collaborate virtually on cloud technology stacks and be able to have efficient work product in the field and with global supply chains. In this hybrid and heavily online collaborative world, across all of our portfolio, we're seeing this and we suspect all of you in the audience are seeing and feeling and adapting to this. But for the broader industry, perhaps who's not yet convinced, we'll turn to one of the mountains in the cloud, the CEO of Microsoft himself, Satya Nadala. And I think he framed it really well, which is this idea that really the two years of this acceleration and transformation has played out in two months, that we're living in warp speed right now as businesses are looking for continuity and for incremental advantage and edge. We absolutely are seeing that across our portfolio. And I think it's reflected in what you see in the leadership decisions of many of these businesses as AWS and Amazon just did the same. As Jeff Bezos announced that he was stepping down as CEO and sure enough, it was the head of their cloud business that they turned to for this. It's telling that two of the world's top three market cap companies on the planet have both decided to place their cloud leaders in charge of their entire business. This is in many ways the ultimate declarative statement on the importance of cloud, as these businesses are literally betting their companies on the cloud vision and cloud leaders. This is from the technology incumbents who are evolving to cloud. But the trends are even more acute when you look at the pure play cloud companies and you can see that the major pandemic tailwinds have really permeated. First, if we look at the top five public cloud companies, this is the class from last year. And then if you roll that forward, what you see is ServiceNow has been surpassed and certainly Shopify through this period has nearly tripled in market cap, driven by the rise of E commerce, but also the digital payments and the QR code system that they have for contactless payments. PayPal has continued to skyrocket. And then of course, Zoom replacing ServiceNow in the top five as Zoom meetings, Zoom backgrounds. And for all of us, even a little zoom fatigue is becoming a necessary and important element of our everyday. Zoom's market cap grew over 4x to reflect that in aggregate, what you see now in total is $1 trillion of market cap across these top five companies and they on average saw a 70% increase in their market cap over the last year since we came to you in Sastr of 2020. And so if you compare this to last year where there wasn't a single company worth over 200 billion in the entire cloud universe, you now have the top three, all of which who are above that and why they maintain a notable lead relative to the others. Certainly the revenue growth and scale of the other two and the rest of the industry are even more impressive in some ways. Zoom's revenue momentum last year with the COVID tailwinds was 367%, which are numbers that our consumer peers typically experience. And while Shopify was In the number four slot, they grew almost 100% at massive scale. So then these are just some examples of the Pure Play application layer and we're going to drill more into that in a minute. But I think it's also worth noting the IAAS side of this and to talk about the legacy software vendors and their businesses and how those have evolved to cloud. And so Amazon Web Services continues to dominate the top over a 30% market share in what is now $150 billion market and still growing rapidly. However, most notable on this chart is the rise of Azure and the Microsoft product and continued market share gains. At this rate, it is quite possible that Azure competes for AWS for the top slot in the coming years, and we're already seeing signs of that on the enterprise side specifically. But let's now return to the Pure Play cloud leaders and combine some of these threads. So we talked about the top five with their trillion dollar market cap, but let's talk a little bit about the evolution of the broader list. When we presented in 2019 we talked about the possibility of a trillion dollar milestone which we promptly passed a year later. Now in total with the COVID tailwinds, with the ascendancy of the top five that alone are now at a trillion, and with the addition of the other 56 companies, so 61 in total, comprising the cloud index. Today you have a shocking $2.2 trillion in market cap for the Pure plays. Again, this does not include proportional shares from the Amazon, Microsoft and Google or Alibaba businesses that are their cloud businesses. Each of those independently are massive market cap drivers for their businesses as well. In some cases like Amazon, you can absolutely make the case that the cloud business is driving the majority of their market cap. So when we first published the Bessemer index in 2011, sorry, 2013, looking back to 2011, it quickly became this great resource for our founders and as you can see objectively, it's had A pretty amazing run. We formalized that in a partnership with Nasdaq in 2018 and in total over the last decade, the index is up over 12x, meaning literally, if you invested $1,000 in this index, put it in a drawer and and pop back present day, you'd have $12,000. Now for the first several years this was pretty informal and we did it for just broad education for our portfolio and for the industry. And then three years ago we partnered with Nasdaq to professionalize things meaningfully and that's what became the BVP NASDAQ Emerging Cloud Index, which is the ticker mcloud. You can literally pull it up on your phone and see it and follow it to see this basket. Then as things evolved, as countless founders and tech enthusiasts and investors asked us whether or not it was investable, we were excited that Selma did decide to turn it into an ETF. And WisdomTree launched it under license the data and launched it under the WCLD ticker over a year ago. Since then it has had similar success. Billions of dollars have now been invested into this ETF worldwide drop, driving tens of millions of dollars of additional demand for each public stock in the index. And as it priced at $25 a share, it has traded up over 100% in the last year at over $50 a share, making this one of the top performing ETFs worldwide. In fact, literally this was as the ultimate statement of cloud power. This basket propelled WCLD to be the top performing ETF on NASDAQ across all industries in 2020 and the number two tech ETF in the entire US within tech, congrats to the industry, congrats to all of you that are participants in this wave. And absolutely this is a sign of what we believe to be the biggest single trend within all of tech. In celebration of these milestones, we've revised the resources and tools and made a lot more material available to all of you back in the cloud community. You can literally just go to our website, bvp.com cloud and we'll put the link at the end here. But we have the analytics up now so you can slice and dice and download the raw data and look at efficiency metrics and scores and really dive into what should be your benchmarks and targets for you as a company. How to think about valuations and multiples, which we'll talk more about here in a minute, but the full data sets available for your use and we welcome and encourage people to take advantage of this relaunched and reinvigorated part of the bvp, NASDAQ Emerging Cloud Index, the WCLD Index and our website more broadly. And of course it was a tumultuous start of 2020 and even over the last several days we've seen a rollercoaster of some ups and downs in the industry. But what we absolutely have seen in the second half of last year and rolling into this year is a push for liquidity options and more and more IPO activity, more and more MA activity and 2020. And the last year in total has had several milestones if we look at the MA side first, sorry, the IPO side first, Snowflake was certainly the most notable not only for the year, but in all of software history. Snowflake became the single largest IPO in software history. And then as we build it out, the M and A activity side, certainly very notable across not only the strategic side but also interestingly the addition of private equity as a buyer in a number of these cases that you see on the bottom right. But to quantify Snowflake specifically and to show relative to the others how significant this milestone was.34 billion at pricing and then they proceeded to over double in the opening. A monster signal for the cloud industry and a real sign for what is happening across the segment more broadly. Then we did see record breaking MA activity with slack as well. 35x Revenue Multiple paid for what is a fantastic business by one of the leaders of cloud with Salesforce really showing that this was the second largest enterprise software acquisition in history after only IBM's purchase of Red Hat, but also the largest multiple ever paid. With all of this cloud activity with the IPOs, the M and A exits and increasingly even some SPAC activity and direct listing activity, it's clear that there's a changing of the guard that what used to be the FAANG stocks and people would talk about the Facebook, Apple, Amazon, Netflix, Google Community as the flag bearers for tech. We submit to you that their growth rates are starting to slow and the trends of Internet mobile are still significant but not nearly as transformative as they once were and that this transition is happening and the growth drivers are the new cloud leaders within tech. In late 2020 we coined a new basket of high performing stocks from within this cloud index and the industry more broadly that we've termed Mount SaaS. And this is comprised of Microsoft, Twilio, Salesforce, Amazon, Adobe and Shopify. And as you back test this data and you can see it just from last year, but if you go back for four years Mount Sas had an 800% return on investment compared to Faang's 330%. And in just over the last year, you see that it's performed by over 100%. And so, simply put, we think cloud computing is increasingly consuming software as well as hardware and services, and therefore remains this mega trend within all of tech. And we do believe, frankly, the most compelling macro theme across global GDP more broadly. And as you roll this forward and as you see these transformation rates, we do see that the COVID 19 has more than doubled this transformation both horizontally and vertically. We do believe that within the next three years, cloud will become the dominant delivery model for all of software in this enabled cloud first world. For all of the aspiring entrepreneurs out there, we believe that every technology company created will likely be a cloud company in some form or fashion, and they will either be directly in the industry or benefiting from cloud technologies and using the power of cloud technologies. So now that we've set the stage for this macro view of the public industry, I'm going to pass it over to Mary and Elliot and let them dive into some of the insights and strategies that we think you as private cloud founders can and should be using. And then we're going to come back to predictions in a minute to talk to you about the future. So take it away, team.

So we'd like to dive into the private cloud market. Now, we have seen the exuberance of the public cloud markets that Byron touched on paralleled in the private markets as well. As of January 2021, there were over 527 private unicorns with a total cumulative value of over $1.9 trillion in drilling. Down to the cloud companies on that list, we find the majority of them on the cloud, which is the definitive ranking of the top 100 private cloud companies that Forbes and Bessemer put together every year. And these companies are worth an impressive $267 billion and include some companies that Bessemer is really proud to work with, such as Procore, Toast, Hashicorp and Canva. Byron touched on some of them earlier in his introduction, but they address really wide ranging industries from construction to restaurants, to design to infrastructure.

Now, I believe it was 2013 or so when Eileen Lee coined the term startup unicorn. But what's crazy to us is that the number of private unicorns has actually doubled in the past two years. So we're seeing more and more companies, particularly cloud companies, with the ability to scale, and that has gone even more rapidly in the new normal. Now, Mary talked about how many cloud unicorns that have taken place. We have to give a very special shout out to one of our portfolio companies. Forter, Mary and I were lucky enough to invest in Michael Reblatt and the team over there. They are the leader in online e commerce, authentication and fraud detection. So this was not, certainly not part of our investment thesis or something we thought about. It was actually the team over at Crunchbase that reached out to us and said, hey, just fun fact, Border is actually the 500th unicorn. And as of January, as Mary talked about, we've well surpassed that. And it seems like every month or so we add another couple of unicorns to the group. You know, as we go forward, the real question is what's driving the growth in these unicorns? It's great to see the numbers go up, but we've spent a lot of time trudging through the data. We have probably the largest cloud portfolio in the venture capital industry and Mary's gonna walk you through some of the drivers that are leading the increase in the cloud market.

Fantastic. So as a cloud founder and even as an investor in cloud, we're always asking ourselves what's driving cloud valuations. And as a firm, we narrowed in on three main drivers. First, the increase in cloud multiples. Second, the increase in cloud company growth rates. And third, more demand than supply for cloud assets. And after we discuss each of those in turn, we'd love to introduce the concept of growth endurance, which helps to explain this explosion in cloud valuations. So we'll go ahead and get started. So first up is the incredible growth in cloud multiples. As Byron highlighted, we architect the BVP NASDAQ Emerging Cloud Index and it had its average multiple increase from about five times forward run rate revenue in 2010 to to over 20 times in 2020. And while we are looking to investigate private cloud in this section we know that private cloud multiples do trail that a public cloud. So it's important to level set in what those look like historically. And interestingly, in 2020 we've seen the top quartile of cloud companies break away from the pact to trade for 30x as a step function change in how the public cloud markets are valuing the strongest cloud companies, including some that Bessemer has been very fortunate to work with historically such as Zoom, Twilio and SH Shopify. Now let's turn to the private markets. We see the same enthusiasm for cloud companies mirrored directly in the private markets as well. With the average cloud 100 multiple increasing by over 150% in the last five years from 9x ARR in 2016 to 23x in 2020, and the median multiple has actually doubled similarly from 7 to 15x. And Byron touched in his introduction on the cloud IPO and M& a success that cloud companies have had as of late. And that accounts for much of why investors are willing to pay more than twice what they did five years ago for private cloud companies and for founders. One thing we'd love for you guys to take away is that building a cloud business today is as lucrative and valuable as it's ever been before. For every $1 of ARR that you generate, investors are adding more than $20 to the value of your business. But we aren't just seeing more unicorns because cloud companies are being given a higher multiple on the same ARR. Growth rates are increasing as well, which is noteworthy here. The average Cloud 100 growth rate increased from 60% in 2017 to 90% in 2019 given tailwinds for cloud adoption. And that growth rate dipped somewhat in 2020 to 80%, which we attribute mostly to Covid headwinds to sales motions. And we did note earlier that the top quartile of cloud companies are breaking away from the pack in the public markets. And it's worth noting that that same trend is happening in the private markets as well. The top quartile companies have increased their growth rates from 65% in 2017 to over 100% in 2019 and were able to maintain that growth rate in 2020 despite a lot of the headwinds that Covid presented. But higher multiples and higher growth rates aren't the end of the story for what is driving cloud valuations. We are realists and operate in an imperfect market. Over the past decade there's been a 10x increase in the number of dollars going into private cloud companies to over 180 billion in 2020, which reflects the growth of the companies, the performance that they've had, and the exits they've had. But the reality is that the massive influx of capital has driven cloud valuations higher. Demand has very much outpaced supply, making investors more willing to outbid one another to partner with the best in class companies. So taken together, we think that these three elements of high multiples, high growth rates, and large access to capital make it the best time in history to be a private cloud founder or operator. But as Elliot mentioned earlier, as investors we're always trying to see into the future. And given the fact that public cloud is trading near all time highs and private cloud rounds are pricing it at almost 25 times ARR. We ask ourselves if those valuations are justified and ask ourselves what the unique qualities are of cloud companies that rationalizes these valuations in perpetuity. So today we're excited to introduce the concept of growth endurance, which is a metric that we track really closely at Bessemer. And we define that as the retention of growth that cloud companies experience from one year to the next. And it equals current year growth rate divided by last year's growth rate. So if we look at public examples first, and we use the BBP NASDAQ Emerging Cloud Index as our basket over the past decade, we find a consistent trend that cloud companies are able to retain 80% of their growth rate from the prior year. We do note that that 80% rule for public cloud growth endurance isn't an absolute, but in public cloud, it actually tends to be relatively narrowly distributed. In 55% of data points, public cloud companies had growth endurance between 70 and 100% in 30% of the time. Public clouds actually accelerated their growth rate year over year, and only 15% of the time did growth endurance fall below 70%. And I know that this is a lot of math, and this is a little bit more of the meaty data stuff that Bessemer is well known for, but the takeaway is really that you can use an 80% growth endurance rule for public cloud to predict the future growth rate of a public cloud business. And as a private cloud company, if you are operating at 80% growth endurance, you're really sitting among the best in class. But we'd love to bring that scatter plot to life and to give you some real life examples of public cloud growth endurance. And we would love to use Shopify and Twilio as some great examples. So Wall street was incredibly bullish on Shopify when It debuted in 2015, but consensus estimates predicted that it would flatten growth to 30% in five years. And instead, Shopify Growth has never decelerated to that level. And in 2020, which we don't see on here because this is analyst predictions at time of IPO in 2020, it actually grew an incredible 80% in the new normal to almost 3 billion of revenue. And in another example, Twilio was welcomed into the public markets in 2016 as a superior developer platform. But even with such recognition, Wall street still grossly underestimated Twilio's growth endurance, believing that the company would decelerate to the mid-30s by 2018. And instead, Twilio has grown an average of over 60% since IPO, with more growth Runway to come. But we'd like to note that there aren't just two examples. We only have time for two, but there are many. And time and time again, cloud companies have defied gravity and outperformed even the wildest growth expectations. And so the key insight here is that even without putting a name to it, the 80% growth endurance rule has helped to propel public cloud valuations, as these cloud companies are able to retain their growth year after year without as much deceleration as many of us would have thought. But we'd love to turn into growth endurance for private cloud. So whereas the public cloud landscape had growth endurance of 80%, looking across the past five years of Cloud100 data, our same data set, we find that growth endurance is lower at 70%. And we think that that makes sense, given that only the best companies tend to be the ones that make it to the public markets. Some private companies won't hit that bar. But you know, just as we went through the distribution for public cloud, we did it again for private cloud, and we find that the distribution is actually wider here. So in 40% of the cases, private cloud companies have growth endurance between 70 and 100%, 20% will actually accelerate their growth. And a much higher percent, a much higher 40%, decelerate their growth endurance below 70%. So to make our work actionable to cloud founders, in true Bessemer fashion, we created a good, better and best of growth endurance. For good, we hold companies to the 70% growth endurance rule for private cloud. For best, we hold companies to the 80% growth endurance rule for public cloud. And better sits in between at 75%. But one of the reasons we love this heuristic is because it ties very nicely to our famed chart of Companies path from 1 to 100 million of ARR that I know the folks here at Saster have seen seen before. So if you assume that a Cloud company grows 300% to 1 million of ARR, a good company would get to 100 million in 12 years, a better company in 7 years, and the best company would get there in 6. So now that we've surfaced a good, better, best framework for growth endurance that founders can use to benchmark their businesses, we want to make sure that we can make it actionable for you here at sastr and many of the cloud founders and operators that are in the audience. And the most effective lever that we have identified in driving high growth endurance is your go to market strategy. And as many of you will remember from last year, Elliot walked through Cloud law number three, which is all about how to master the sales and marketing learning curve. But that was before the pandemic and we realized that a lot has changed since then. So I would like to invite Elliot to talk about the sales and marketing learning curve and the new normal.

Fantastic. So as Mary talked about, we spent a lot of time thinking about growth endurance over the past year as all these companies were trying to adjust to go to market in the new normal. And last year, as Mary mentioned, as part of Save the Cloud 2020, I walked everyone through best practices for mastering the sales and marketing learning curve. What you really want to take away. I'm not going to walk you through every phase of this, but just follow that golden rule we talked about last year. Do not scale anything until you have measurable proof that it's working and follow this mantra of you've just got to nail it before you scale it. But here's the thing, when we were doing this last year about this time, everything changed. The traditional sales and marketing learning curve was really focused on field sales, sitting down, going to your customers offices, going to trade shows, maybe that juicy steak dinner that you can have to get a new customer over the line or renew them or upsell them. And what we've done over the last year is really sit down look at the companies that have performed extraordinarily well throughout Covid and the new Normal. And we said well what are some of the project go to market strategies that have really, really helped and really propelled companies to defy gravity. As Mary said, when we look at kind of their growth year over year and their forward growth endurance and there's three, some of these are new. We're going to drill into them a little bit from a case study perspective. First we're going to talk about product led growth strategies. We've seen companies like PagerDuty, ProductBoard and Intercom do that extraordinarily well. It's really this idea of focusing your product right on your customer, getting in their shoes, thinking about the user as your go to market motion usage based pricing models. Again a trend that we've seen more and more but five years ago where a lot of the traditional go to market motion focused on a SaaS license or annual enterprise sale top down, there's a lot of new ways that people are leveraging and usage based pricing to drive net dollar retention and gross retention. Then lastly, a really cool thing that we've seen grow rapidly over the last year is the emergence and surge in cloud marketplaces which help B2B businesses find each other and transact in the cloud. And a special shout out to tackle IO really the leader in this space and they just announced a new big round of series B yesterday. Again, we try to predict these things and then sometimes we get lucky and they happen after we make the slide. So let's talk about product led growth a little bit. Again, not necessarily a brand new idea but a renewed strategy in the new normal. The way that I like to think about it is it's really putting the focus on your customer and the idea that you've got to make them successful. Your success is not defined that we went from 50 customers to 100. It's about that one customer making sure that your product is focused on them. There's less friction in terms of getting them time to value, in terms of finding these inflection points where they have their aha moments. And what's really cool when you think about Karen Peacock and the team over at Intercom is when you do it right, your customers grow with you. And a lot of SaaS founders out there are watching us today. You're thinking about that first batch or that first cohort of your customer, regardless of where they are, whether it's a big enterprise customer or kind of a SMB or SME customer. If you're really talking about growing and making sure that you grow with your customers. In Intercom's case, they did their PLG strategy so well that when their customers grew and the company grew with them, their go to market motion actually went up market very naturally. It wasn't about retooling go to market just to focus on a top down sale or a big new enterprise wide champion. It happened more naturally. We see more and more of these type of solutions and strategies playing out in the new normal where again you just sit down with your champion or the person that you're trying to sell from kind of a top down market perspective. We've just seen a massive growth in the value and success of product led growth companies, whether it's Datadog or Twilio. It's really again that retooling and focus on your customer as your market entry strategy and then you just let the organic growth go. We've got some things online that talk about kind of best practices for how you measure that, how you grow that and how you invest in that further usage based pricing. So you know, Mary talked a little bit about this in the growth endurance section, but we'll highlight Courier here, my partner Ethan, he talks in his developer laws about the holy grail of pricing models is when it's measured, when your customers can measure their value and again when you can grow with them. So in Courier's case, they charge on the API call for notifications. This allows your customers to know I'm paying for what I'm getting value for. And as I accrue more value, typically they're willing to grow with you and pay you a little bit more. And it really eases the conversation where you're naturally going to them, whether it's every month or every quarter or annually to talk about renewal and upsell. One thing that we really liked to see when we looked at this data was net dollar retention. When you juxtapose folks that have a usage based pricing model versus those that have more the traditional enterprise license or traditional SaaS sales model, we found that the folks that focus on the usage based pricing model have about a 10% higher public market valuation. And what we also found is that for the companies that achieve scale, so let's say companies that are 100 million and north of ARR, they actually can maintain their growth endurance much easier than those that have the traditional model. And one thing that we've also seen be very successful is companies that have the hybrid model. So you've got your annual SaaS license, you've also got a usage based price model that's focused on a metric where your customers and your users are using the platform and that's how you drive future growth. And then lastly, cloud marketplaces, you know, can we make these slides before we ever present them and share them with the market? And we had used Auth0 as a case study this year. And congrats to Eugeneo and the team on their big acquisition and partnership with Okta. One of the things that they found is, you know, this is your traditional large enterprise sale for a large part of their market segment. And in the new normal they found a lot of success reaching new customers, negotiating with new customers and selling new customers by doing and transacting with business and the cloud through this channel marketplace. We looked at a bunch of studies to figure out how is this channel growing in the new normal and over the past year. One of the cool things that we saw in a recent study was that 80% of cloud sales interactions are going to happen in some form of a digital channel by 2025. So what does that mean? That means of course the traditional trade shows matter. That's where you're going to perhaps meet folks, have that drink after we're all vaccinated and it's a bit safer but you're still going to probably transact in some form of a digital or cloud channel. Auth0 found that their sales cycle diminished by about 50% in this channel alone. And if you look forward to just 2021, we're predicting about a $3 billion total transaction volume for this go to market strategy. More broadly, if you take a step back and you said, well what's really happening in the new normal where folks aren't able to do these in person interactions. It's just that the sales funnel is changing. It's no longer this top down thing where people enter your sales funnel, they kind of go through your process and hopefully you convert them or they spit out at the bottom. We're really advising companies and what we've seen in terms of the companies that did really well, they just created a sales motion and a customer pipeline experience. It's a flywheel. It's just about how can we create champions and and use those champions to leverage new business. I'm going to talk about one company. If we take a step back to last year we talked about, I think it was Prediction six which was enterprise automation at scale and just all the exciting things that were happening with data science and automation. One of the companies that we talked about was hyperscience. They are software defined input to outcome automation platform for the enterprise. And it was funny because we ended up investing in the company on Black Thursday which was the day last year when the first time when the market collapsed 2000 points. Now the CEO happened to call me that morning and he said hey, is our deal still good? Should we still expect the money to come through and is the valuation or any of the terms change? We said no, we're still good. And when we invested and Covid really hit, we saw their go to market team adjust on the fly. So in order to captivate customers, they moved to this model where they let the customer speak for them. They moved to their hashtag customer things customers say strategy and it really drove sales and a lot of adoption. They changed kind of customer success onboarding when it came in and time to value was dramatically reduced almost by 70 days. And that also drove growth in terms of cultivating. You know, they just totally changed their customer playbook for onboarding how they got them on the market and made them successful. And then lastly they expanded their customer advisory board to make sure that they felt part of the company and were champions for them in the market. Last point on this, they saw almost 300% year over year ARR growth, 10x growth in platform usage in the new normal and 170% net dollar retention which is huge for any company quite frankly. Now look, we've talked about a lot of things public market trends, private market trends, growth, endurance, some best practices that we saw in the New Normal and now it's time for the most exciting part of our predictions every year. So I'm going to jump right in. Prediction 1 the continued unbundling of the Office suite if you map against historical Office software, particularly Microsoft, there's a whole new class of startups that are taking things like emails, calendaring, event driven solutions and they're just unbundling it and they're offering solutions that are much better than what you can get in a package deal. Prediction 2 this one is really cool because every sole proprietor or SMB, they were hit really hard and uniquely in the pandemic. And we're seeing more and more cloud software platforms that are focused on the SMB, helping them drive and thrive in a new normal and really bringing them back online. And then lastly, I'll take just one second to talk about this one because it's somewhat personal to me. I've been really excited to see diversity, equity and inclusion software take their rightful place. With all the unfortunate events and conversation of last year, we've seen a huge growth in this sector, particularly on the enterprise side. I'll give one special shout out to Cyndia, which we recently led their last round and they're the new and established leaders in pay equity, just making sure that everyone gets equal pay for equal work. This is really important to everyone at Bessemer, Byron and Mary included. And I'm going to pass it to Mary for the next prediction.

Okay, prediction number four Apologies. Data and Machine Learning Infrastructure accelerates to new heights as companies make the transition to the cloud and as more data is generated and available than ever before, we're seeing the enterprise data stack evolve as well. And whether it's Firebolt and data warehousing coiled in python based data analytics or imply data in real time analytics, the opportunities are endless. And Prediction five, which is the rise of the citizen developer and creator. In 2019 we did predict that the low code, no code movement would take off and fast forward only two short years and we're fully in the age of democratization of software development. Companies like Zapier and Webflow are freeing up engineering resources to equip their non technical workers with developer capabilities and to get a sense of use case as possible. In this cohort companies like Air Kit are revolutionizing how companies connect with their customers through their low code customer engagement platform. We're also seeing a similar proliferation of tools democratizing the creator economy and I'll invite Byron up to share the next prediction.

Great. So fintech and crypto is all the rage in the consumer side, but also relevant on the enterprise side and you can see the breadth of ways that it's impacting the payments landscape across SMB and enterprises. Much more details on this on our website as you dig in there. And then prediction seven is this long building wave of vertical SaaS that we've seen for years we think absolutely becomes a tsunami now this year, whether it's well known companies like Toast and Service Titan leading their respective industries or up and comers like a shop monkey, a Squire or getting into a bright wheel example or Gloss genius in health and beauty, we're seeing it more and more as verticals are turning to software for their solutions. And so all of these materials are online. We encourage you to look at the further resources. We dive into the takeaways in more detail, which we've shown you throughout the sections here. And more and more is happening within this amazing cloud market and ecosystem that we're all a part of. And you'll see some specific takeaways around things like the go to market strategies that we hope and believe you can implement in your businesses. In addition to thinking about the metrics and the benchmarks that you're all likely aspiring towards. Then as we all like to say, this new normal means that we are living in a cloud first world. There's a lot of additional resources. Feel free to follow us on Twitter. The hashtags are there, our handles are there to follow us, and then yes, even in our zoom outfits. I'm not going to scroll down, but we're all a little more casual these days as well. Then, perhaps most importantly is the resource follow up that's available for all of you. Not only the State of the Cloud report which you can see in terms of the deeper content, download the full report et cetera at the website, but I'd also highlight a book giveaway. Jeff Lawson, our amazing Twilio CEO that we've been able to work with now for 11 years. Back to the Seed round, recently published. Ask your developer, share your thoughts and insights on this report and we'll send you a copy of this book if you're one of the first hundred to weigh in. Then again, the new cloud index materials that are online where you can slice and dice the data at your leisure and really go to town on the industry that we're all a part of. With that, I'll say thank you. And in the meantime, keep kicking ass. Power to all of you and thank you for continuing the business and personal continuity despite these crazy times. Cheers.