Wednesday, June 21, 2023

Bessemer Venture Partners: State of the Cloud 2023 (plus Bessemer's Anti-Portfolio)

We like Bessemer.

First up, April 10. 2023:

State of the Cloud 2023
The cloud economy has entered the multiverse—we share insights for SaaS founders as they navigate today’s difficult financing climate and welcome the dawn of the AI era.

If we thought the pandemic years were an era of dramatic cultural and digital transformation, think again. 2023 is the year of the “multiverse,” where technological and macro changes continue accelerating at stunning rates leaving SaaS builders, founders, and investors breathless.

On one side of the cloud economy, founders and CEOs are weathering some of the most challenging storms since 2000 and the ‘08 Recession. Rising interest rates have evaporated the cheap equity of recent years forcing startups to reduce burn and drive towards efficient growth. The Silicon Valley Bank crisis drove even more uncertainty into an already fragile environment. But amidst the anxiety and turmoil, the tech ecosystem has witnessed something potentially as world-changing as electricity: a string of AI advancements that may prove to define technology and society for generations to come.

The Large Language Model revolution is one of the most significant developments in computing history. We believe artificial intelligence will not only multiply software and human capabilities, but also completely transform and expand the cloud economy in the process.

In The State of the Cloud, Bessemer provides a founder’s guide on navigating the financing ecosystem for what will likely be the next 18-24 months. We also explore Bessemer’s view on the cloud economy and the AI imperatives that SaaS leaders must enact today or else be left behind.....


.....Exploring the cloud multiverse:

Cloud trends around the globe 2023 

Navigating the cloud market landscape

As venture investors, we learn from historical cycles and the laws of the universe—what goes up must eventually come down. Over the past two years, the pandemic served as a tailwind to pull forward cloud adoption, and a low interest rate environment fueled an investment frenzy in both public and private cloud markets. But normalization came quickly in the form of mean regression.

November 2021 marked the height of the bull market as public cloud market capitalization reached its peak of $2.7 trillion. Since then, cloud markets tumbled in 2022’s SaaSacre and declined disproportionately compared to other broad market indices.

The SaaSacre of 2022

The major story of 2022 was around the external shock of hiking interest rates. Within the year, we moved out of a near zero interest environment at record breaking speed, leading to multiple compression and a significant amount of macro uncertainty. The record high multiples of prior years inflated by hyper low interest rates and stimulatory environment have not just regressed to the mean—they are currently reset below normalized, historical long-term averages.

2023 is a hiking interest rate environment

Additionally, this macro instability had a double squeeze on cloud companies since recession fears led to headwinds such as lengthening sales cycles and tighter customer budgets, which impacted core business fundamentals such as growth.

taking the long view of the public cloud markets

Despite the challenges in the cloud economy, there are many silver linings. Taking a long-term perspective, cloud markets have consistently outperformed other broader market indices. This is a testament to the power of the cloud model—one of the most attractive business models to ever be invented. Even in the last 12 months, with seemingly never-ending challenges, the average BVP Nasdaq Emerging Cloud Index growth rate was still more than twice the average S&P 500 company growth rate. In just ten years (2013-2023), the total public cloud market capitalization has grown from $283 billion in March of 2013 to $1.3 trillion in March of 2023. Today the public cloud market is still above pre-pandemic levels.

SaaS M&A and IPO slowed to a halt....

.....MUCH MORE,video, slide deck, graphs, charts.

They launched their cloud index in 2013, no cumulus-come-lately's here.

And the Anti-Portfolio, something we've been linking to since 2008:

The Anti-Portfolio.
Honoring the companies we missed.

Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, tracing our roots back to the Carnegie Steel empire. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.

Throughout our history, we did invest in a wig company, a french-fry company, and the Lahaina, Ka'anapali & Pacific Railroad. However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.

Our reasons for passing on these investments varied. In some cases, we were making a conscious act of generosity to another, younger venture firm, down on their luck, who we felt could really use a billion dollars in gains. In other cases, our partners had already run out of spaces on the year's Schedule D and feared that another entry would require them to attach a separate sheet.

Whatever the reason, we would like to honor these companies -- our "anti-portfolio" -- whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working.


Jeremy Levine met Brian Chesky in January 2010, the first $100K revenue month. Brian’s $40M valuation ask was “crazy,” but Jeremy was impressed and made a plan to reconnect in May. Unbeknownst to Jeremy, $100K in January became 200 in February and 300 in March. In April, Airbnb raised money at 1.5X the “crazy” price. In December 2020, Airbnb went public at a $47 billion valuation.


Bessemer had the opportunity to invest in pre-IPO secondary stock in Apple at a $60M valuation. Neill Brownstein called it “outrageously expensive.”


Byron Deeter flew straight to Atlassian in 2006 when he caught wind of a developer tool from Australia (of all places!). Notes from the meeting included “totally self-financed, started with a credit card” and “great business, but Scott & Mike don’t ever want to be a public company.” Years and countless meetings later, the first opportunity to invest emerged in 2010, but the $400m company valuation was thought to be a tad “rich.” In 2015, Atlassian became the largest tech IPO in Australian history, and the shares we passed on are worth more than a billion dollars today.


On a late summer evening in 2012, the email came in to Ethan Kurzweil’s inbox with the subject line: “Demo day, follow up, Coinbase.”  After the standard pleasantries, the sender, Coinbase founder and CEO Brian Armstrong quickly got to the point: “What questions can I answer for you in the next two weeks that would cause you to invest in Coinbase?” The round on offer was $500k on a standard SAFE at a $10M cap for something almost no one had ever heard of!  Ethan’s pithy response would go on to earn Brian and Coinbase a spot in the Anti-Portfolio for life: “There’s really no questions you could answer that would cause me to invest!” Almost nine years later, Coinbase would go public in a direct listing valuing the leading crypto exchange at $85.8 billion – or just a mere 8,580x the price Brian had eagerly offered up!....