Tuesday, October 13, 2020

2020 Accel Euroscape: Decacorn Unleashed

- This article was co-authored with my colleagues Varun Purandare and Candice du Fretay and published initially on Tech.eu. The 2020 Accel Euroscape was unveiled earlier today at SaaStockEMEA. You’ll also find the video recording of the presentation at the end of this article and the slides are available here. We’d like to thank KeyBank and G2 for providing some of the data used in the report -


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It’s an amazing time to be a cloud entrepreneur in Europe. It reminds me of living in Silicon Valley 10 years ago when so many foundational SaaS companies were started. The European cloud ecosystem is growing much faster than anyone could have anticipated: last year, we predicted that it would take another three years for Europe to generate its first decacorn. UiPath broke that milestone this summer, in just nine months, establishing Europe as a major global center for software innovation.

 

This year, in addition to unveiling the Euroscape, our list of top 100 Cloud companies started in Europe and Israel; and our Champions League, the high-growth unicorns from the region; we’ll also unveil the Accel Euroscape Public Index, the index of the European and Israeli-born public cloud companies, and its performance.

 

Before jumping into the list, let’s have a quick look at what’s been a very special year in many ways for the cloud ecosystem globally and in Europe. 

 

A New Software Era: The Rise of the Giants


Software has been eating the world for 30 years now, but looking at the acceleration we have seen in the past decade, software has entered a new era: “the rise of the giants”. There are now eight software companies north of a $100 billion market cap, representing $2.7 trillion of market value. This is a big jump vs. 2010 when we only had three companies (Microsoft, Oracle and IBM) valued just over $550 billion. What’s even more impressive is the new generation, with 75 public cloud companies valued above $1 billion vs eight companies in 2010 and 26 of these companies are already above $10 billion.

 

 

If we zoom out and look at the overall cloud market, we can see momentum building. The Cloud market tripled in the past five years to reach $100 billion today and if its growth continues at a similar pace, we estimate that Cloud will overtake on-premise software by 2025, when the entire software market should be worth around $1 trillion.

 

Europe has also joined the race with its first Cloud giants. This summer saw two record transactions within a month, as UiPath became the first European Cloud decacorn in July and Visma, a Norwegian company, became the world’s largest ever software buyout with a $12B+ valuation. Big milestones for the old continent!

 

Cloud Entrepreneurs: Embracing the “Silicon Valley State of Mind"


Accel has been a big believer in cloud since the early days of this secular shift. We've invested $5B+ in more than 250 companies and feel privileged to have partnered with category-defining companies such as Atlassian, Crowdstrike, Docusign, Dropbox, Slack and UiPath. And Europe has shown even greater acceleration. We've increased our investments five-fold in the last five years, backing close to 50 cloud companies of which seven have already become unicorns.

 

 

Looking at the map above, it’s so inspiring to see Cloud entrepreneurs across the globe. The one thing that unites them all is their ambition to make a global impact and change the world - the “Silicon Valley state of mind”.

 

2020 Cloud Market: Is The Sky the Limit?


The momentum of Cloud companies is also seen in the public markets. It seems unstoppable with around $1 trillion of value created in the past 12 months and the Cloud Index massively outperforming the Nasdaq. This unprecedented growth is driven by the acceleration of digital transformation and an increase in valuation multiples which have reached historic heights. The average revenue multiple is now 17x+, close to 10 times higher than during the 2008 crisis! Is the sky the limit for Cloud public stocks? 

 

On the IPO front, the one word that comes to mind is “supersize”. While the number of IPOs in 2020 is close to 2019, the average valuation has doubled  compared to last year, driven in particular by the massive IPO of Snowflake, which reached a $70 billion market cap on its first trading day. And public companies have also taken advantage of the favourable market environment to raise 2x more capital than they did last year through secondary offerings and convertible bonds.

 

And what about Europe?

 

When I started in venture, I was fortunate to witness the birth of the first generation of cloud companies in the US. This led me to launch the SaaS 13 Index in February 2008 while I was at Bessemer. It consisted  of 13 companies and in 12 years has evolved into a massive Index representing $1.7 trillion in market cap. Today, we’ve reached the point where Europe deserves its own Index, and we’re very happy to announce the creation of the Accel Euroscape Public Index, the Index of public cloud companies born in Europe and Israel. It’s composed of 10 flagship companies with  a combined value close to $100 billion: Elastic, Dynatrace, JFrog, Mimecast, Talend, TeamViewer, Unity, Varonis, Wix and Zendesk. Since 2013, when Wix, the first of these companies went public, the Euroscape Public Index has outpaced the Nasdaq by 2.5x, achieving more than 500% growth in seven years.

 


 

We expect the growth of the Index to only accelerate as Europe generates more unicorns. In 2020, Europe and Israel minted seven new unicorns, taking the total number to 25. 


This growth has been fuelled by much larger private investment rounds. In 2016-17, the five largest rounds had an average size of $100 million. In 2019-20, this number has grown to $330 million. Europe is catching up with the US, which is very exciting!

 


However, it’s not only about a few large rounds. The entire amount invested in private cloud companies in Europe and Israel in 2020 has grown close to 30% so far to $9-9.5 billion, which is nearly half the c. $20 billion invested in US-born cloud companies. 

 

2020 Accel 2020 Euroscape and Champions League 


Before unveiling the Euroscape and Champions League, we wanted to highlight a couple of facts showing how far the EU cloud ecosystem has come. First, from a funding perspective, the 2020 Euroscape winners, including the Champions League, have raised a whopping $14 billion. That’s close to 6x more than in 2016. Secondly, these companies have created more than 70,000 jobs, and the unicorns emerging represent around $60 billion of market cap, which is half of the value of the Euroscape Public Index!

To develop the list, we surveyed more than 1,500 European and Israeli private SaaS companies across 20 countries and a number of categories. We’ve made a couple of changes to the list this year as well, adding payments as a new category and only including unicorns in the Champions League.

 

2020 Accel Champions League

 

 

This year, the list is comprised of 19 category-defining companies from 12 cities and nine countries. Their average employee growth in the past 12 months was north of 40% and they’ve raised $6.7 billion of combined funding. An impressive list! It’s incredible to see what Europe has been able to generate.

 

And now, for the Accel Euroscape 2020! We must say that it was incredibly hard to put the list together this year as we had so many great applicants. As you can see, both the data and security categories are booming, and we welcome the addition of payments and banking infrastructure fueled by the expansion of a new generation of financial services.

 

2020 Accel Euroscape


 

What’s very exciting for us is that these 100 companies come from 34 cities and 21 countries, showing that success can come from anywhere in Europe.

 

With $7.4 billion in funding raised by the winners, it’s interesting to look at where the money has been directed. We can see ecommerce/marketing has been boosted by COVID and security is in second place, with cyber criminality not slowing down. The data analytics category is showing early promise with many companies in the space.

 


 

You'll find more analyses on the 2020 winners in the full presentation

 

A strange year: It was the best of times, it was the worst of times…

While many lights are green, it’s hard to ignore the fact that COVID-19 has changed the lives of billions of people. In 2000 and 2008, the economic crises had a dramatic impact on the tech ecosystem, but 2020 seems to be very different. Let’s take a look at how cloud companies have been impacted by the pandemic.

 

The first impact of COVID has been to radically transform the work from home paradigm and massively accelerate digital transformation – by at least two years. Ten public cloud companies have hugely benefited from this acceleration, Zoom being the first. Together, these ten companies have seen an increase of their market value by close to $0.5 trillion, representing half of the increase in value of the global cloud Index in just nine months.

 

 

That said, this impact has been fairly concentrated. Overall, cloud spending growth in Q2 was in line or even slightly below the historical average.

 

On the private company side, the impact of COVID falls into three buckets: 

  • Roughly 20% of the companies have seen strong acceleration, particularly companies in collaboration, ecommerce, automation and security 

  • Most companies saw a moderate to limited impact

  • A few companies selling into distressed sectors like travel or hospitality have been severely impacted

 

If we look at the survey performed by KeyBank, it’s very much in line with what we have observed in our portfolio. Overall, COVID prompted people to revise their growth forecast slightly downward and be more conservative on their cash burn, but so far, the impact hasn’t been dramatic. Interestingly, companies have adapted very similarly in Europe and the US, except on the cash front, where EU companies have been more conservative.



This crisis is very different from what we’ve seen in the past, as there are as many opportunities for cloud companies as there are risks. Navigating this crisis is not about cutting back: it’s about taking advantage of the opportunities while not leaning too far over your ski tips to avoid a catastrophic fall.

I’m sure everyone remembers how hectic March and April were this year. It was frantic but also inspiring as many cloud companies looked beyond their internal challenges and did everything they could to help. For example, I can’t forget the call I had with Stan, Founder and CEO of Doctolib, when he announced that he was shifting the company’s focus to telemedicine to help the French and German healthcare systems during the lockdown. In two weeks, Doctolib made the product self-serve and extensively deployed the solution, which you can hear more about in the short video below.




UiPath was another inspiring company. The founders refocused their foundation to help fight COVID in Romania, achieving a massive impact. I will let Alexandra Dines, Chair of the foundation, tell you more about their story. 




 

What’s Next?

 

To conclude, let’s have a look at what’s ahead for the cloud ecosystem in Europe. We see five defining trends:

 

Work coming home: No surprise here. The world of work has changed dramatically, with entire companies moving fully remote as countries were shutting down. With work moving into the home, the need to stay connected dramatically accelerated the need for collaboration tools like Miro, Slack and Zoom. For example, the number of daily meeting participants grew from 10 million in December 2019 to 300 million in April 2020. In addition, entirely new software categories are being created in a record time, like virtual events, a market created by Hopin.


Doctors now online: COVID put the healthcare system under immense pressure in many countries. When physically meeting a medical practitioner became difficult, telemedicine services exploded. In France, Doctolib saw the number of video conferences on their platform grow from 100,000 in the 13 months before lockdown to 4.6 million today. As doctors are embracing new technologies, we think this is only the beginning of the digital transformation of medical practices and hospitals, and we expect a lot more innovation in this vertical in the coming years.


Hyperautomation - Bots and citizen developers transforming the Enterprise: Most people in the world use software, but fewer than one percent can code. It is as if 99% of the world could read but only 1% could write. The emergence of low code/no code platforms is changing this paradigm, enabling a growing number of employees to automate their business processes. Combined with the rapid rise of RPA automating the data and intelligence layers, we expect Enterprise to hyper-automate in the coming years, leading to the rise of a new generation of cloud services.


Fintech stack moving to the cloud: In the past, the complexity of monolithic banking and payment infrastructure made it difficult for non-financial institutions to develop new services. Today, modern API-first platforms are making it possible for many cloud companies to integrate payments and banking services. We expect this trend to disrupt banks and insurance and to give rise to a new generation of Fintech infrastructure companies.


Cybercriminals feasting on Covid: Hackers took advantage of the disruption generated by COVID and made the need for security even more acute. As their environments get more distributed and the notion of perimeter disappears, we are seeing enterprises moving to zero trust architectures, placing more focus on secure code development and securing their data and communication with privacy and encryption tools. With more funding going into the category, we expect to see the momentum continue.

 

We predict these trends may well produce the next generation of the Champions League. 


Video of the presentation at SaaStockEMEA





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The European ecosystem has grown so much over the past five years, and it’s been a privilege to be part of it. On behalf of the Accel team, we’d like to congratulate all the champions and top 100 winners and to thank all the cloud founders who have worked hard and had the vision and ambition to make this happen.

 

As Thomas Edison said, ‘Genius is 1% inspiration and 99% perspiration’. We’ve been very impressed by both the creativity and resilience of the European cloud founders and look forward to meeting a lot more of you in the future!

 

Feel free to reach out, we’d be happy to hear your story.


Thursday, October 01, 2020

Snyk: How Freemium Can Help Your Start-up Grow from Series A to $2.6B in 30 Months



Snyk was founded with the mission to help developers make their code secure, providing a platform to automatically assess and remediate open source vulnerabilities.  The company’s success has been largely driven by its developer-led freemium model, going from Series A funding to a valuation of $2.6B in just 30 months.

Accel had the chance to lead Snyk’s Series A 30 months ago and then the Series B a year later, before the company reached unicorn status with its $150m Series C in late 2019. It recently announced the closing of a $200m round at $2.6B.

Earlier this year, I was on a panel with Guy Podjarny, Snyk’s founder, at SaaStock Remote to discuss how the team’s community-driven freemium approach led to the company’s stellar growth. Here’s a short summary of the discussion:


Guy, you launched Snyk in 2015, and a large part of your success was driven by your freemium model. With COVID, we’re getting into a world with tighter budgets and likely longer sales cycles. How can a product-led sales motion help in the current environment, and how important is a freemium model to drive product-led growth?

Guy: To give you more context, at Snyk, we have this interesting combination of user and buyer. The two aren’t the same. The most important user of our product is the developer. However, the entity in the organization with the job of keeping the organization secure and the budget to accommodate for that is the security team. As we wanted a direct path to the user to ensure we would be providing the best user experience, we decided to go for a freemium model to lower the bar for developers to get started. Today, we have around 1.5 million developers using our product.

Developers have no barrier to getting started with Snyk. By the time it gets to a purchase, there’s already some kind of conviction. Once we had the user (developer) and the buyer (security team) on board, the freemium model really accelerated and made it quite resilient to this crisis. It took us longer to get into revenue, but the freemium was a real accelerator for us.


What made you consider a freemium model rather than offering free trials? To some extent, we could argue that if you had set up a free trial, you could have gotten into revenue much sooner than you actually did. How did you think about this trade-off in the early days of Snyk?

Guy: This is a very important point, and we did spend a lot of time thinking about it at the beginning. Freemium implies you’re supporting certain use cases in the free tier in perpetuity. People who fit that use case don’t need to pay you. With a free trial, you’re giving somebody the ability to use the product, but you’re not really satisfying their needs.

It boils down to the use-case decision. The value of a free trial is that it's a quick and easy way to see your product and get a feel for it. It removes friction. The value of freemium is that you want that use case to generate a community. So you have to ask yourself if your free use case targets an audience large enough to create such a community.

We have two kinds of users at Snyk: the open source developers, who are never going to pay but will help build the community. They advertise to the world that this problem matters and that we're a potential solution to it and they help us make the product better. Then, they tell their friends.  Then,we have the developers in commercial entities, who see how our product can help make their organization more secure and will expand the service to their team and eventually become paying users.

The mistake  I often see is a freemium tier based on technical capabilities, which ends up not supporting any specific use case. This makes it hard to build a community of users and advocates. So, if you want to launch a freemium product, you have to ask yourself if there’s a large enough audience who can use the product for free for a long time.

We took advantage of the difference between our buyers and users to build our model and it’s worked out well so far.


To double click on your last point, in the freemium model, you have to accept that some users are just going to be a cost center for the company and never generate any revenue. The tricky question is how do you define the threshold of value you provide? I see a lot of early-stage companies struggling with this. Either they offer too much and never convert, or they don’t satisfy any free use case and can’t build a community. How did you define this threshold for Snyk?

Guy: You see this challenge all the timeOne of our key findings was that we wanted to appeal to developers, so we modelled our product based on the developer’s playbook. We built a company and product that looked like the ones other developers look up to and have earned their trust, like Atlassian, Twilio or GitHub.

The idea was that you get a free tier, then at some point, you start paying for a certain volume of usage. We tried that at first. It failed spectacularly. What we learned is that you need to come back to the core use case. In the world of security, there’s a certain threshold you have to reach to get the development team to use the product. When you want them to buy, they need a certain breadth. We needed to broaden the offering before we could sell it by adding the main languages and platforms support. We ended up collapsing our first paid tier into free and focused on the larger tier for monetization but at a much higher price by offering a much deeper offering.


In this journey, was there a point where you thought that freemium might not be the right way to go?

Guy: We set out to do something that really hadn’t happened yet. Developers usually don’t embrace security solutions. So, we focused all of our efforts on this issue. A year in, we had great usage and no revenue. We were very fortunate to have very supportive investors. We had tens of thousands of users, but investors had to take a leap of faith before we monetized. Once we hit that curve, it helped us fuel that growth.

In the developer world, it’s “Go Big or Go Home." You have to think about the use case, nurture the right community, provide the right functionality, and delineate from the premium elements. If you get it right, you can really go big.


If you put yourself in the shoes of the early-stage founder who is seeing their pipeline slowing down or their conversion rate going down because of the crisis we’re facing, how should they think about it? How do you know if your product or use case can be a good fit to support a free product?

Guy: You’ve got to focus on the audience that’s likely to convert. If the audience isn’t big enough to support conversions, you’re probably better off offering a free trial. Freemium needs a substantial audience.

If your challenge at the moment is lead generation, I’d suggest building side tools that are in your space and that would draw in the right type of people. You’re asking the same type of questions about the use case but you don’t have to bet the entire business model on it. Providing free tools allows you to provide value and strike up a conversation.


A lot of Snyk’s success was based on the developer community that you have built. What’s your top tip for building a high-value developer community?

Guy: The developer community has a very low tolerance for hype of vaporware, so you have to be authentic. When you work with developers, you have to provide true value.

Weaving yourself into the daily lives of your developers is very important. But you have to understand how you fit into this world. If you’re coming into their ecosystem and you’re running it down, you’re going to have a very short shelf life.


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I hope this will help you better design your own model for success. If you want to go deeper in some of the areas highlighted in the post, you can see the full fireside chat below




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Wednesday, July 15, 2020

Accel 2020 Euroscape: "Decacorn Unleashed"​ - Apply Now!


- This article was co-authored with my colleagues Varun Purandare and Candice du Fretay and published initially on Tech.eu. The Accel 2020 Euroscape will be presented at SaaStock in October.

Last year, we predicted it would take three years for Europe to mark its first Decacorn. We are so happy and excited to see how wrong we were, as it took less than 9 months! Following in the footsteps of consumer companies Supercell, Spotify and Adyen, UiPath became the first European SaaS decacorn earlier this week. With this milestone, Europe has clearly established itself as a key center for software innovation in the world. 

If we look back 10 years, it is amazing to see how far the SaaS ecosystem has come  in a decade. When we started to take stock of this progress four years ago with the first Accel Euroscape, the list of the top 100 cloud companies from Europe and Israel, we had great hopes and Europe delivered beyond our expectations.

So, what does the next generation of European SaaS companies have in store for us? 

This is what we will attempt to discover with the 2020 Accel Euroscape. 

Applications are now open, and if you think the name of your company should be on the list, you can apply HERE – applications will close on 9th September 2020. 

Similar to last year, on top of the 100 companies in the Accel Euroscape, we will release our Champions League of Unicorns and now Decacorns! Customer feedback will play a key role in our ranking as usual. We will be working closely with G2 to include their ratings in our ranking.

2020 has been the best of times and the worst of times. The worst, because the global COVID-19 pandemic, on top of its impact on the health of millions of people, has created havoc in the global economy, triggering unprecedented levels of unemployment and destroying many small and large businesses. The best, because the confinement has accelerated digital transformation dramatically, achieving in two months what should have taken at least two years. 

As a consequence, SaaS public multiples and private company valuations are at an all time high, and the pace of cloud innovation is accelerating. The aggregate value of the 67 public cloud companies have surpassed $1T in February 2020 to reach $1.4T at the time of this post. In some areas like collaboration or health tech, the progress has been dramatic. 

For example, unicorn Doctolib added 31,000 new doctors in five weeks for its tele-conferencing service, seeing the number of daily calls jump from 1,000 to 100,000! At the same time, the government adapted the legislative framework to make sure patients would be fully reimbursed. 

While founders have been very quick to streamline their costs and prepare for the worst in the early days of the crisis, the demand for most SaaS products has continued to grow since the beginning of the year, and we have not observed the shock that we saw during the past crises in 2000 and 2008.

Indeed, all the traffic lights are green for the SaaS ecosystem (fingers crossed!). 

In the past 9 months, the 100 companies from the Accel 2019 Euroscape and the 13 “Champions” have raised c. $3B, including 11 nine figure rounds, in particular UiPath ($226m), Algolia ($110m) and Celonis ($290m), with 3 additional companies passing the $2B valuation mark. SaaS remains one of the top categories for funding in Europe and Israel with $6.1B raised since the beginning of the year, a jump of 25%+ vs. the same period last year, despite Covid.

2020 is also a remarkable year for our firm, as we are celebrating the 20th anniversary of our presence in Europe. As you can imagine, it has been hard for us to celebrate this milestone in the current environment, but after 20 years of helping software companies go global, believing strongly that the European software ecosystem would rise and reach the global stage, witnessing the first European Cloud decacorn is above any celebration we could have hoped for.

We will disclose the 2020 Accel Euroscape on October 12-14 2020 at SaaStock. This year, it won't be in Dublin but fully remote. 


Don't forget to tune in, and you can already register for an opportunity to attend for free (ADD LINK). On top of the list of the top 100 companies, we will present our analysis of the European Cloud ecosystem and how it was impacted by COVID 19.

Stay tuned and see you in October. Don't forget to apply HERE.