The Bessemer Cloud Index was created in 2013 by Bessemer Venture Partners to track the performance of emerging public companies primarily involved in providing cloud software to their customers.
The index has quickly become the benchmark for the rapidly expanding universe of public cloud computing companies.
Bessemer was one of the early investors in cloud and SaaS companies and now holds one of the largest cloud portfolios in venture capital. Their belief in cloud companies led to the creation of the index as a means to track performance.
And, in 2018, Bessemer partnered with Nasdaq and launched the BVP Nasdaq Emerging Cloud Index, listed as EMCLOUD.
Eventually, the index became a self-fulfilling prophecy, because now every SaaS founder knows and wants to be on this index, when they’re publicly traded.
What does the Bessemer Cloud Index show?
The cloudindex.bvp.com website features a wealth of information, including charts, a showcase of the companies that make up the index, along with their performance.
But perhaps most importantly, the site shows stats like forward revenue multiple, which is essentially the value public market investors are paying for every dollar of revenue.
Let’s say you have $100 million in revenue and you have a 10x multiple, that’s equivalent to a billion-dollar valuation.
One of the interesting things about the index and how SaaS companies are valued is the “Rule of 40” - the market basically values high growth and profitability, but also understands that growth costs money. Therefore, for many of these subscription businesses, it’s OK to burn some cash if you are in a high-growth mode.
The pure-play way to look at SaaS companies
Things have been a little ugly for SaaS companies in the last six months. While they had a huge run-up thanks to COVID-19 (the Index reflects that performance), more recently, it’s been down by about 40%.
But keep in mind this is historically a pretty volatile subsector.
So even though the SaaS performance has been down 40% and the Cloud Index performance has been down 40%, Nasdaq is only down 15% because there are a lot of really large, very mature, tech companies that are cash flow positive.
So the Bessemer Cloud Index is a better pure-play measurement for the startup SaaS ecosystem.
You can also buy it and have the Index in your investment portfolio. It’s a great way to get broad exposure across all the SaaS companies.
Why the Bessemer Cloud Index matters
If you are in the SaaS startup space or the cloud startup space, and you are trying to figure out what the market is like, what the revenue multiples are like, then the Bessemer Cloud Index is a great tool to use.
Venture capitalists are investing in companies in the early stages and in medium stages so that they can become late-stage startups, so they can become IPOs, and get publicly traded. So VCs are always watching the performance in the equity market to see how comparable companies are trading and how they are performing.
So, as an early stage and medium stage founder, it pays to keep your eye on the Bessemer Cloud Index.
If you have any questions about stock multiples or the SaaS market, please contact us. Or if you are interested in SaaS accounting, metrics like ARR or burn multiple, etc!