The BVP Nasdaq Emerging Cloud Index, an index designed by Bessemer Venture Partners to track the performance of emerging public companies that provide cloud software, hit a record $2.2 trillion in value on Feb. 5, according to the venture firm’s State of the Cloud 2021 report. Just a year earlier, pre-pandemic, the index was valued at $1 trillion.
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And two years ago, in February 2019, the collective value of the cloud index was $690 billion.
We spoke with Elliott Robinson, a partner at Bessemer Venture Partners, about this year’s report and its significance.
“We’ve seen all of these cloud companies that we track year over year — their market capitalization just skyrocketed,” said Robinson on the impact of the last year.
Robinson cites the shift to remote work as the factor that has created much of the growth for these services. These could be consumer- or enterprise-oriented companies. Among the businesses that have benefited from the “new normal” are: Toast, a point-of-sale platform for restaurants; live virtual events platform Hopin; Hinge Health for its remote physical therapy with wearable sensors; and Hyperscience, which automates office work processes.
Large funding rounds have followed this growth.
The report aims to help educate startup founders, Robinson said, “particularly in this new normal with new strategies that can help cloud companies and cloud founders.” He co-authored the report with partner Byron Deeter, the creator of the index, and Mary D’Onofrio, a partner at the firm.
A year ago, just as the team was planning to record the findings from the prior 2020 report in early March, the pandemic hit, leaving them wondering if they should go ahead. Fast-forward a year, and there’s been an increase of more than a trillion dollars for emerging public cloud companies.
The significance is reinforced by a quote in the report from Microsoft CEO Satya Nadella from a statement a few months into the pandemic: “We’ve seen two years’ worth of digital transformation in two months.”
A new metric: growth endurance
The report cites a new metric called “growth endurance,” which is calculated as the current year growth rate divided by last year’s growth rate.
As private companies grow into larger revenues, their growth rates year over year will most likely go down. The report calculates growth from $1 million ARR assuming a company had grown 300 percent from the previous year.
For a top-performing company with growth endurance at 80 percent year over year, it will take six years to get to $100 million ARR. The next level is “better growth” at 75 percen, which will take seven years, and “the good” level at 70 percent will take 12 years per the report.
Leading public cloud companies
Currently, the index comprises 58 companies, up from 54 a year ago. Slack departed the list in December 2020 through its acquisition by Salesforce, making it the largest acquisition for a cloud company according to the report.
Just a year ago, not a single emerging cloud company was valued over $200 billion.
In the past year, PayPal, currently valued at more $280 billion, moved from third place to first as the most highly valued cloud company. Adobe and Salesforce were both valued over $200 billion in 2020 for the first time.
Shopify’s valuation grew close to threefold during 2020. And Zoom grew more than fourfold, catapulting it into the top five, where it replaced ServiceNow. As of March 2021, ServiceNow’s valuation is not far below Zoom’s. And Square’s valuation also rose significantly during 2020 crossing over the $100 billion mark.
In the M&A and IPO markets, the report cites much activity in 2020, including Snowflake (the largest software IPO ever). Other notable cloud companies that went public include Qualtrics, C3, Asana, Sumo Logic, JFrog, BigCommerce, nCin and Agora.
Public and private cloud companies are now valued on average over 20x forward run rate revenue according to the report. “For every one dollar of ARR you generate, investors are adding more than $20 to the value of your business,” per the report. Back in 2010, public cloud companies were valued at an average of 5x forward run rate revenue.
When asked if these valuations are too high, Robinson said he believes that the top performing companies are scaling so well that these valuations will hold up.
In 2013, Shopify was valued at $1 billion in a private financing round. The thinking at the time, according to Robinson, was that if Shopify is worth $5 billion over time that would be a strong outcome. Shopify went public in 2015 valued at $1.27 billion and is now worth more than $130 billion in the public markets.
Predictions for 2021
The report ends with a few predictions for 2021. Robinson focused on diversity with products like Syndio which supports companies on pay equity, to companies supporting SMBs, which is personal to Robinson with a family history of small business owners. There are a number of companies in this sector namely Squire for barbershops and Ada for customer support.
Another prediction: We’ll continue to see the rise of the citizen developer, with no-code tools and platforms that support creators, like Substack for journalists and Airtable, a cloud-based database simple enough for use by nontechnical users.
Illustration: Li-Anne Dias
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