Bessemer Cloud Index: are you savvy enough to invest in it? - Fuel Finance
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Bessemer Cloud Index: are you savvy enough to invest in it?

What is the Bessemer Cloud index? Well, this is one of the newer, more innovative stock market indexes that Bessemer Venture Partners created in 2013, with a market cap, at that time, of under $100Bn . Their recognition of specialized product and business model advantages gradually shaped the cloud as the gold standard for computing companies. Bessemer himself became one of the early investors in Cloud SaaS (Software as a service) companies. He held (and still does) one of the largest cloud venture capital portfolios in the world. One day, he had an epiphany and as a result, created an index to track the performance of cloud SaaS companies. Maybe, he just wanted a metric that would demonstrate exactly how successful and intelligent he was. At the moment, the market has ballooned to around $700Bn, so it is safe to say that he made a pretty smart investment.

He saw that companies benefited from predictable, annuity dependent revenue. By decreasing R&D costs without the need to support multiple stacks and higher customer stickiness (because of the embedding of software into the workflow), SaaS has become what it is today.

Bessemer cloud index tracks the performance of emerging public companies who primarily provide cloud software to their customers.

Bessemer Venture Partners’ marketing & PR made the index one of the global standards. Suddenly, every capable SaaS founder wanted in when their companies became publicly traded.

The number of companies on the index exploded, and it has quickly become the globally recognised index in the rapidly expanding world of public cloud computing companies. 

What makes Bessemer Cloud Index special?

On their site they show you a wealth of information; including financial graphs, a showcase of the companies that make up the index, and a detailed analysis of each companies historical performance, as well as future predictions. But most importantly, it contains concrete statistics, such as the forward revenue multiples, which is one way savvy investors determine what technology companies are worth investing in.

Imagine you have $100 in Revenue and a 10x multiple. That’s equivalent to you having a billion-dollar evaluation.

Don’t know what SaaS company to choose? Just invest in the Bessemer Cloud Index.  Safe to keep in your portfolio long term, and it is a great way to get broad exposure across all the successful SaaS companies. There are also a couple of specific companies, for example EM-CLOUD and WCLD that prove BVP’s impact on the industry.

You might be familiar with their 10 Laws of Cloud Computing and the annual State of the Cloud Industry report. The company also co-hosts The Cloud 100, which picks peaches in tech’s hottest categories; from small startups to private-equity-backed giants, as well as celebrating and highlighting the leading private cloud companies. Over one hundred and fifty cloud companies they have partnered with, have led to 11 IPOs, dozens of M&A exits, and significant funding for cutting edge private cloud companies.

What is happening to it now?

It has not been a Disney World roller coaster, just more of a traditional roller coaster at the moment.. As you know, the investment world has gone cra cra. And of course, this has also affected SaaS companies. Six months ago,  SAS companies had a record run due to Covid, and the index reflected that performance. However…

Over the last six months, SAS companies are down about 40%.

Don’t panic, keep in mind that this is historically a pretty volatile sub-sector. For example, if you compare the overall SaaS or cloud index performance of minus 40% to the NASDAQ, the NASDAQ is only down 15% over the same period. A primary reason is the NASDAQ has a lot of blue chip companies that are cash flow positive, and mainly consists of very mature tech and long term growth companies.

So the Bessemer Cloud Index, is a better pure-play measuring bar for the overall startup SaaS ecosystem, a great way to dip your toe into the market or find companies with great forward revenue multiples. Venture capitalists are right now funding companies in the early stage and medium stage, in order for them to become late-stage startups, and eventually launch an IPO and become publicly traded. As a private investor however, finding these hidden gems is impossible, unless you use an index like Bessemer, that does all that work for you.

Not only that, venture capitalists are also constantly monitoring the index to see how comparable companies are trading and performing.

Get it tattooed on your founder’s hipster hand: if you’re an early-stage/medium-stage founder, always keep your eye on the Bessemer Cloud index. 

And as we’re on the subject, you also need to get acquainted with new cloud trends like verticalization boost, software-defined infrastructure models, machine learning enablement, and payments-as-a-service.

Bonus points:

The BVP Nasdaq Emerging Cloud Index (EMCLOUD) at a Glance

  • There are currently 46 companies on the index with a combined market cap of $690 billion
  • Their average life span is ~15 years 
  • They are still growing an average of ~35% annually
  • They have an average of ~10% FCF margin
  • They trade at an average of 11x EV/current revenue run rate  and 9x EV/forward revenue run rate

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