The COVID recession has not impacted the 20-year love affair investors have had with SaaS. But as the era of "SaaS for X" draws to a close, where are the next opportunities for today's cloud startups? Rory O’Driscoll, partner at Scale Venture Partners and early investor in SaaS pioneers like Box, Docusign, and Bill.com, takes a data-driven look at the evolution of the SaaS market then looks ahead to the next generation of enterprise software: the Intelligent Connected World.

1. The War Is Over and the Cloud Won
Rory O'Driscoll
What Comes Next?

2. “There are decades when nothing
happens and there are weeks when
decades happen.”
V.I. Lenin
2

3. 2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
12/31 1/7 1/14 1/21 1/28 2/4 2/11 2/18 2/25 3/3 3/10 3/17 3/24 3/31 4/7 4/14 4/21 4/28 5/5 5/12 5/19 5/26
S&P 500
We Have Just Lived Through One of Those Times
Booming
January 1 to March 12S&P hits all-time high
3
Worldwide lockdown
S&P -34% from high
Ending
March 13 to March 23
Lockdown + recession
S&P + 37% from low
Sifting
March 23 to Today

4. Cannot Look to History
Three Recessions: Very Different Causes, Very Different Results
Dotcom
(2000-2002)
Cause:
Tech did it
IT Recovery:
10 years
Worst Sector:
IT
(80% decline)
Financial
(2008-2010)
Cause:
Bankers did it
IT Recovery:
2 years
Worst Sector:
Financials
(74% decline)
COVID-19
(2020-?)
Cause:
Virus did it
IT Recovery:
8 weeks
Worst Sector:
Energy
(61% decline)
4
San
Francisco
New York City
Everywhere

5. Tech Leaders on Accelerated
Digital Transformation
“We saw 2 years of digital
transformation in just 2 months.”
“For years we’ve talked about
the future of work. That future is
playing out now. The new ways
we’re communicating, sharing, and
collaborating are here to stay.”
“The global coronavirus pandemic
has been the catalyst for a massive
shift toward digital everything.”
Satya Nadella
CEO of Microsoft
Aaron Levie
CEO of Box
John Collison
Co-Founder and President of Stripe
5

6. COVID
Prioritization
Recession
Impact
Overall Impact Companies
Winners (10% of cos.) • Zoom
Minimal Impact (40%)
• WFH
• E-commerce enablers
• SaaS market leaders
Existential (10%)
• Airbnb, WeWork
• Vertical SaaS Travel/Retail
But Reality Is More Nuanced
6
Major impact (40%)
• On-premises IT
• Non-essential cloud apps

7. 8 cos ≥100%,
driven by COVID demand
In Short Term, Recession
Is Beating Digital Transformation
7
SCALE PORTFOLIO: Q1 ARR VS. PLAN
Public SaaS
Q1 Guidance
50% suspended
guidance
40% lowered revenue
estimates
In the short term,
recession is “winning”
0
50
100
150%
%
%
%
79.4%
Median
5 cos ≤ 50
7
raised revenue
estimates10%

8. Median EV/Revenue (2004 - Present)
Median for period: 5.5x
Median
SaaS Multiple
All-Time Peak
But Mr. Market Is Happier Than Ever
8
Source: Scale, public company data
0.0x
1.0x
2.0x
3.0x
4.0x
5.0x
6.0x
7.0x
8.0x
9.0x
10.0x
Q42004
Q32005
Q22006
Q12007
Q42007
Q32008
Q22009
Q12010
Q42010
Q32011
Q22012
Q12013
Q42013
Q32014
Q22015
Q12016
Q42016
Q32017
Q22018
Q12019
Q12020
Current
5.5x
Despite slower growth
Cloud stocks up 30% YTD
Multiples currently > 2x
Q1 2016 trough of 4.3x

9. Why Is Mr. Market So Happy?
9
The market is
delusional
All of the
above?Cloud is the
unstoppable
megatrend
World is awash in
liquidity and tech
is “best” bet

10. Tech Failed Us
101010
“COVID-19 has blown apart the myth of Silicon Valley innovation.” – MIT Review
“Software-driven bling” – MIT Review
“The Internet Has Failed Us” – MIT Review
“We Chose Not To Build” – Marc Andreessen
“We wanted flying cars we got 140 characters” – Peter Thiel
Every dime invested in the Cloud “paid off”
1 Billion knowledge workers went home and no one missed a beat
WFH could disrupt:
• Where people live
• Commute time
• The value of commercial real estate
COVID response was a governmental failure and Cloud was the (limited)
technology workaround
Tech Saved Us

11. Words You Will Not Hear
111111
Cloud Is Now the Only Option
“I think we should wait for the next pandemic before
we commit to our Cloud solution.”
Fortune 500 CIO
Every remaining enterprise Cloud purchase decision
will be made in the next one to two years

12. How Many Cloud $’s Are Left?
12
Cloud Market Size
Top 10 Cloud + All Other Public Standalone
Company FY 2019 Revenue
Microsoft $45 B
AWS $35 B
IBM $21 B
Salesforce $17 B
Adobe $11 B
SAP $9 B
Oracle $8 B
Google $7 B
Workday $4 B
Service Now $3 B
Total – Top 10 Cloud Companies $160 B
Total – 50 Other Public Cloud $32 B
Grand Total – Cloud Revenue $191 B
In 2019
Cloud was $191 Billion of
a $456 Billion enterprise
software market
Source: Cloudwars.co, Scale/CapIQ
After 20 Years
Of 30% growth…
Only 42% market share

13. But Watch What Happens…
13
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
% of Market % Left Over
20 Years 3 Years
Fortunately,
software market
is growing
3 years to 100%
market share = 2022

14. Cloud Eats Software, Software Eats the World
1414
$191B
Growth: 30%
$84T
Growth: 3%
$456B
Growth: 7%
$3.7T
Growth: 1%

15. Cloud Already 50% of Software Market in 2020
15
Revenue ($B)
Growth
Rate
2019 2020 2021 2022 2023 2024
Cloud Software 30% $191 $249 $323 $420 $547 $711
All Enterprise Software 10% $456 $502 $552 $607 $668 $734
Cloud as a % of Enterprise Software 42% 50% 59% 69% 82% 97%
This year Cloud is > 50% of enterprise software
Story no longer “Cloud replacing on-prem” but “Cloud vs. Cloud”
Source: Scale, Gartner

16. Winners Will Bundle, Markets Will Consolidate
16
Cloud behemoths will
search for growth in
adjacent markets
Many enterprise customers
will welcome fewer
vendors / platforms

17. 17
Outcome/ Examples Revenue Trajectory Investment Decision
Winners (10%)
• Zoom/Notion/Miro
• Accelerated in 2020
• Everyone wants in
• Can I pay 50x & make money?
Minimal Impact (40%)
• WFH
• E-commerce enablers
• SaaS market leaders
• Slowed a little in 2020
• Plans to accelerate in 2021
• Will growth re-accelerate?
• Is this a standalone category?
• Is this the market leader?
Major impact (40%)
• On-prem IT
• Non-essential cloud apps
• Slowed a lot in 2020
• Must get to CFBE
• Public stock “value plays”
• Venture is not a value play
Existential (10%)
• Airbnb/WeWork
• Vertical SaaS Travel etc.
• Dead stop Q1 2020
• Who bounces back by when?
• Who survives?
• Silverlake lends to Airbnb at
10% and half last round price
Investing Dynamics: Late Stage and Publics

18. Investing Dynamics: Early Stage
2020 2021 2022 2023 2024 2025 2026 2027
COVID
Recession
COVID Part 2:
“Normal” path to
recession ending
Cloud: 90%+ of
software $
Exit window
$100M ARR
Plan for a world where:
Post-COVID is
New Normal
Cloud is Software,
Software is Cloud
2020 recession
distant rearview mirror
YOU ARE
HERE
AIM FOR
HERE
18
Investing
here

19. Three Different Strategies for Startups
19
Replace a Cloud
Incumbent
Compete head-on
in an existing Cloud market
Find Cloud
White Space
Focus on a new market where
Cloud penetration is low
Move Beyond
“Cloud for X”
Leverage the new technologies
of the past 10 years
• Zoom head on vs. Microsoft
and Cisco, best product won
• Sometimes same market, but
different buyer (rise of developer)
• Underpenetrated SW markets,
verticals, SMB
• Use Cloud to eat the world
• $’s from telco - Zoom
• $’s from banks - Shopify
• Assume the Cloud and build
on top
• Assist, augment, automate
• Build the Intelligent Connected World

20. Intelligent Connected World in the Enterprise
20
Software that
does the work for us
Leverages
• AI
• Sensors
• Connectivity
Sits on top of
existing Cloud apps

21. ICW Expands Addressable Dollars
21
Cloud Bookkeeping Today SMB Bookkeeping in ICW
Outsourced bookkeeper
$10K per year
Cost savings to SMB
AI-based bookkeeper
$5K per year
QuickBooks Online
$500 per year
QuickBooks Online
$500 per year

22. ICW: Common Technologies, Multiple
Architectures
22
What It Does
Examples
A spectrum from
coaching/advising
workers/end customers to
automating low level work
Can either be a "better” answer
than prior solution or a new
tech-enabled answer where
previous work done by people
Automate dangerous,
difficult, or boring work
Replace an “old world”
company with a new
business model
Replaces?
Business
Model
Sometimes older software,
workers, or inefficient/ less
thorough processes
SaaS software
Better info replaces worse info,
or replaces workers
Fee per unit of work
Workers
Hardware or subscription
Competes with other
businesses for consumer $
Depends on product
ANSWERS ATOMS FULL STACKSOFTWARE
DELIVERY ARCHITECTURES
ENABLING TECHNOLOGIES
SENSORS CONNECTIVITY MACHINE LEARNINGCOMPUTER VISION NLP SPEECH

23. ICW: Each Architecture Has Unique Strategy
Questions
23
Key
Strategy
Questions
Defensibility
Network
Effects
• Low, more like classic
software oligopolies
• Not automatically
winner-take-all
Hard tech problem plus strong
network effects
• Strong if cross-customer
data and model overlap
• Capture the value of a
better product more directly
Comes from well-architected
combo of software,
hardware, and sensors
Low
Winning is its own defense
Potentially strong
• Where does data come from?
• How much value are you
adding on top?
• Are you just “predicting” vs.
“structuring the unstructured”
Prove that your data/model
is “more predictive” or “at
parity” to humans or past
data sources
Is the ROI high enough that
you can get past a more risk
averse buyer?
The customer doesn’t care
about/know about “AI”
but rather price,
convenience, experience
A Hierarchy of Defensibility:
1. System of Record Sandwich
2. Structure the Unstructured
3. End-to-End Experience (best)
• Value = Work Replaced x
Defensibility
• More pricing
transparency associated
with “doing the work”
Value
Capture
ANSWERS ATOMS FULL STACKSOFTWARE

24. Summary of What Just Happened
24
COVID will drive
every company to
the Cloud
Not every Cloud
software
company will
benefit equally
Newer startups
should swerve to
avoid the wreck
Plan today for the
world that will exist
in 5+ years

25. 25
Rory O'Driscoll
Partner
rory@scalevp.com
www.scalevp.com/team