Bessemer’s 2022 “State of The Cloud” Report
Key Findings, And What They Mean For Startup Founders
By Growth Warrior Capital — 05.24.22
Through our relationship with Bessemer, we were honored to be invited to get an early look at their annual review of the cloud marketplace — notable this year for what Bessemer is calling the “SaaSacre”, a fall of more than 40% of their SaaS portfolio valuation that started in November, 2021. The report serves up data, analysis, and perspective from a world-class investment organization that we’re happy to call a Growth Warrior Capital LP.
Here are our top 3 takeaways, along with our interpretation for early-stage founders:
- Bessemer Insight: 2022 will be the year of the Centaur.
No longer the stuff of myth, they are emerging as arguably the most powerful engine of economic growth we know of. Why? Because ARR is the new valuation; size, while still sexy, just doesn’t matter as much.
Growth Warrior Capital Take:
We LOVE this idea. Centaurs achieve $100 million in ARR due in large part to operational and GTM efficiency, which often doesn’t translate directly to standard valuation analysis Unicorns are often held to. The connection between revenue multiples, strength of unit economics and efficiency is easier to map for Centaurs, often typically disconnected from A or B stage valuation — so, whereas Unicorns get rewarded for size, Centaurs get rewarded for performance, which is simply not always equatable to size. Our mission is to find Unicorns — and now, more importantly, Centaurs — among the most rare, underserved, and under-recognized founder cohorts — diverse and female SaaS tech founders. We have already invested in three — two women, one black male — on their way to Centaur status. Our mission is to create a movement that TRIPLES the number of BIPOC and female millionaires in the US by 2040 — investing in Centaur-capable founders is nuclear-fuel to this mission.
2. Bessemer Insight: The state of the cloud is strong.
Corporations are migrating to the cloud en-masse, and the software applications they need are both proliferating at light-speed and getting better and better.
Growth Warrior Capital Take:
Looking at the domain of financial services as an example (editor’s note: likely the slowest-adopters of cloud migration strategies), the ability to embed payments and other key financial service offerings into, well, everything we do, isn’t going to slow down. And the experiences are getting more seamless and efficient. For early-stage founders in particular, this is a no-brainer. We’ve reviewed more than 450 companies in the past year, virtually none of which were outside the SaaS/Cloud model. Would-be Centaurs already know — across any domain, not just FinTech — scale is only achievable as a SaaS/Cloud package.
3. Bessemer Insight: Don’t Let the “SaaSacre” Become a Hype-induced Obsession
“With inflation on the rise, interest rates climbing, and geopolitical uncertainty, 2022 was met by stormy conditions in the form of a dramatic market correction. The BVP Nasdaq Emerging Cloud Index slipped back to 2020 levels, dropping over 40% in value. (As of May 2022, the cumulative market capitalization of the public cloud is approximately $1.4 trillion). However, despite this drop — or what we’ve called “The SaaSacre” — this cohort of cloud companies still exhibits strong fundamentals (e.g., 41% average growth rate, 71% average gross margin, 45% average efficiency score.) So what is the true state of the cloud? Public stock performance never impacts how we, as venture capitalists, invest into early stage businesses, but we recognize that for private cloud founders, this is a tenuous time. Despite this, we still believe that the cloud model is the most important paradigm shift since the invention of the internet. The promise and potential of the cloud economy still persists — and will only continue to grow.
Growth Warrior Capital Take:
Have we hit bottom? Yes, the economy is correcting. Here’s our take — we believe that historically there is often absolutely no substance to rally upsides; as such, while there is no denying the absolutes (e.g., massive spike of inflation; 2+ year pandemic; supply-chain disruption after-effects; war in Europe), there are fundamental economic positives (e.g., low unemployment; persistent consumer spending; unprecedented corporate profits) that mean we could be in more of a normal market correction, an over-heating coming out of the global shut down just two years ago. As outlined in #1’s and 2 above, the outlook for SaaS and cloud is actually not cloudy; as such, we remain bullish on early-stage investing overall, with the caveat that founders MUST re-focus less on what’s possible (e.g., “wait, what if we built this new thing?”) and more on long-term cash flow management rigor and customer acquisition acceleration (e.g., the keys to sustainability through a down-cycle).
In sum.
Bessemer’s report is brilliant. We are using it to inform, educate, and enlighten our portfolio companies; we’re using it in our diligence process.
We are bullish on finding the world’s best Centaurs-to-be. Do you know of any? Are you one of them?
We’d love to hear from you — reach out at www.growthwarriorcapital.com.
Founders — take a look at our LinkedIn Learning course — Get Funded to Grow Your Business.
