Euroscape 2024: AI Eating Software

The Accel 2024 Euroscape was unveiled earlier today at SaaStock in Dublin and you can view the full presentation here.

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AI - the main driver of value creation in the tech world

AI is rewriting software - literally and figuratively. The NASDAQ keeps climbing higher, up 38% in the last 12 months and beating new all time highs. Out of the $8.4T of value created in the past year, $5.3T is coming from the six tech titans that are investing tens of billions into AI: Apple, Microsoft, Google, Meta, Amazon and Nvidia. As AI is starting to unlock an unprecedented wave of productivity improvements across the enterprise, the development of this new tectonic shift seems unstoppable. 

However, outside of the world of AI, the perspective isn’t as bright, with shadows of geopolitical uncertainties and the risk of recession looming.This environment combined with the digestion of 2020/21 high software spend and the shift of enterprise IT budgets to AI has been hard on both public and private cloud companies, putting huge pressure on growth. The Euroscape Index of public cloud companies has progressed at half the pace of the Nasdaq and the average growth rate shows a decline from 47% at their peak in Q2 2021 to 15% in Q3 2024. In 2021, 23 companies in the index were growing more than 40% per year compared to none today. The era of high software growth is fading away and leaves companies no other choice but to focus on profitability.

In this context, the cloud IPO market shows little signs of reopening. However, M&A activity remains solid, with 2024 already above 2023 at $58.7B. The M&A market remains driven by very large deals, with  Synopsys’ acquisition of Ansys for $35B being the largest this year so far. The big tech titans are still missing in action, constrained by intense regulatory pressure and their focus on AI. The take private activity also remains healthy with 2024 on track to reach $40B, which is in line with 2023.

AI investments pushing venture funding back up

After three years of consecutive decline, funding of private AI and cloud companies across the US and Europe is climbing again at $79B, up 27% vs. 2023 and 65% vs. 2020. With AI making up $32B (40.3%) of this number and driving the majority of growth, non-AI funding is now tracking 2020’s levels at $47.3B.

When we zoom in on venture AI financing, three facts are striking:

1. US is leading the AI race: out of the $56B invested in 2023-24, roughly 80% has gone to US companies vs. 20% for Europe and Israel

2. The investments are heavily concentrated with ⅔ of the funding going to the top 6 companies in each region

3. ⅔ of the funding has been invested in companies building foundation models

These numbers reflect the expectation of the venture community that a limited set of 12 or so companies will generate tens of billions of dollars of value in the next 5-10 years to justify these levels of investments. With OpenAI recently valued at $150B+ on the back of record breaking revenue growth, we don’t expect the flow of investments to slow down in the short term.

As billions of dollars are being put to work, the pace of development of new models is increasing, evolving from text to multi-modal, the performance of the model is increasing across all benchmarks and the cost of inference is pushed down drastically - eg. the cost of inference for 1,000 tokens on GPT4 has gone down 90% from March 2023 to May 2024. Huge progress is also coming on the text to video creation side with impressive previews from Google and Meta and Black Forest Labs (the team behind Stable Diffusion) expected to release a new video model in the coming quarters.

Game of AI thrones 

Will AI foundation models be a “winner takes all” market? Probably not. While Microsoft has a strong head start with its relationship with OpenAI, we are just in the very early innings of the race and it is too early to call it. If we look at the world today, there are three AI leagues:

1. The Titans: Amazon, Microsoft, Google and Meta, investing each $30-60B in AI per year, including capex

2. The Majors: OpenAI, Anthropic and X, each spending billions of dollars per year

3. The Challengers: a small number of scale ups (eg Cohere, H, Mistral,, Black Forest Labs etc…) each spending 10’s to 100’s of millions per year

It will be interesting to see in the coming months if investment capacity is the only driver of success or if more focused models and workflows can take the lion’s share of specific markets. In many applications and in particular in everything touching enterprise workflow automation, cheap inference costs and very low latency are key requirements, leading us to think that more focused models will play a significant role in the future. 

The rise of Enterprise Agentic workflows

Text focused models have started to impact the productivity of enterprises primarily on the software development side, improving productivity of developers by 20%+, on the customer support side, dramatically deflecting the number of contacts managed by humans (numbers we are hearing are in the 20-40% range and increasing) and on the media creation side. Next to these use cases already in production, most large enterprises have been experimenting with internal applications and expect to deploy them next year.

We expect the next generation of models to include agents specifically trained to execute business tasks and workflow. These models will generate a new wave of automation for enterprises as AI will handle the execution of more complex tasks and tasks with a large number of possible outcomes that current automation tools are struggling to address. Initial announcements have been made by Microsoft and we expect new releases in this field next year and enterprises to start experimenting with them. One challenger to watch is H, the foundational companies focusing on agentic workflow who received investments from UiPath and is expected to release their first product in the coming months.

The top 100 2024 Accel Euroscape winners

As AI dominates the cloud world, it is not surprising to see a big shift in the list of winners this year. We’ve also adjusted the categories to reflect the new landscape of AI driven business models. You can see the full list and more in the report here

 

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At Accel, we can’t be more excited by the trends we are seeing around AI and the new generation of AI-native applications that will be created in the coming years. We believe this secular trend will continue for the foreseeable future and redefine the way application and software will be written. We have been very active in the category with investments in Scale, Synthesia, H, Decagon, Assembly, Ema, Gamma, Vercel among others and expect a large part of our new investments to fall in this category.

We’ve deployed more than $10B across 400+ AI & cloud companies in the past four decades and have been fortunate to partner with many exceptional cloud & AI founders globally. While there is still an imbalance today between the US and Europe on AI, we expect eventually that this difference will flatten and that AI winners will come from anywhere, like we have seen for cloud companies: from Atlassian in Australia to UiPath in Romania, Celonis in Germany, Snyk in Israel, and Docusign and Crowdstrike in the US. We can’t wait to see what the next decade will bring.

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Your cloud data needs a reality check: our investment in Cyera

 

Yotam Segev (left) and Tamar Bar-Ilan (right), cofounders of Cyera

The complex equation of data reality

With AWS, Azure and GCP growing 40-50% YoY at massive scale (AWS’ run rate is more than $70B!), it’s fair to say that migration to the cloud is in full swing. That said, some large sectors like financial services and healthcare only started to migrate their core workloads and data to the cloud more recently. With less than a third of workloads currently migrated, there’s still a long way to go*.

 

One of the benefits of the cloud is that it gives development teams more agility and flexibility, but with increased flexibility comes the downside of a loss of control and visibility. This is a particularly acute issue for data, which is the most valuable and sensitive asset of many businesses.

 

On top of the move to the cloud, the volume of data continues to grow exponentially. Latest estimates are that the 65 zettabytes (1 zettabyte = 1 billion terabytes) of global data in 2020 will have nearly tripled by 2025**. With digital transformation accelerating and new AI based applications being created and perfected every day, this growth isn’t set to stop anytime soon. Add to this the constantly increasing compliance and privacy needs, including GDPR and CCPA, and the growth of cyber threats, and you end up with the following equation:

 

Data reality: 

cloud migration x growing data sets x increased compliance x cyber-attacks 

= big headache for CTOs and CISOs

So how do you solve this equation? You have to eliminate the headache. 

Cloud security and compliance stack

We think about cloud security and compliance in four distinct layers:

1. Infrastructure layer: securing your cloud infra typically requires a CSPM solution (cloud security posture management – a tool identifying misconfiguration issues and compliance risks for your cloud infrastructure)
2. Identity layer: who can access what, typically managed by an identity management layer
3. Application layer: organisations now are increasingly applying the “shift left” principle, giving developers the tools they need to write secure code, instead of relying on security teams
4. Data layer: understanding where your sensitive data is and what policies should be applied in order to ensure that it’s safe and compliant

 

 

Over the past few weeks, we’ve talked to many CISOs and CTOs about cloud security and here’s what we observed:

 

• Regardless of whether companies are cloud-first or in the process of moving their infrastructure to the cloud, understanding and securing their infrastructure is a key priority for CISOs/CTOs. The fact that it’s so easy for employees to create cloud resources and move them around is creating “infrastructure chaos” and driving an acute visibility issue

• Most companies we spoke to already had a CSPM solution in place. Ease of set-up was a key adoption driver for these solutions

• The identity layer was well addressed and understood via solutions like Okta

• While several companies had heard of the shift left and were already deploying Snyk, others were just starting to think about it. It seems like we’re at the early inflection point of the S-curve on this front and expect the momentum to continue - and even accelerate - as large companies expand their deployments to all their development teams

• When it comes to the data layer, all companies are lacking visibility on what sensitive data they are collecting, where it's stored and whether it's at risk. The situation is untenable, leading all companies we spoke to have put cloud data security on their list of priorities for this year. Many were starting to search for a dedicated solution for the cloud data and compliance layer

Cyera: solving the data reality equation

Why is the data layer challenging to address when data security has been an established field of cyber security for such a long time?

 

The issue is that existing products focus on endpoints and on-premise datastores. Sub-categories include DLP (e.g. Code42, Digital Guardian), data privacy (BigID, Privacera), encryption (Enveil, Protegrity) and data security platforms (Ionic, Varonis). Many of these products rely on an agent-centric architecture which must be installed on each endpoint in order to monitor data. With the shift to cloud, a more scalable architecture is possible - and indeed required - to deal with the scale and dispersion of enterprise data. These solutions weren’t architected for the cloud at inception and don’t have the simplicity of deployment and functionality expected by cloud users. In addition to the data security pure-plays, the cloud service providers also have some data security offerings for their own clouds, including AWS Macie, but these fail to support the multi-cloud architectures favoured by most large enterprises and are also expensive to run while also not providing full coverage of the data landscape. In the case of AWS Macie for example, only S3 buckets are analysed, leaving significant risk across enterprises’ complex data environments.

 

The failure of existing data security solutions to address cloud specific issues are reflected by the increasing numbers of data breaches that are increasingly sophisticated and targeted. CrowdStrike recently reported an 82% increase in ransomware-related data leaks in 2021. There is no industry or scale of enterprise which is immune from the threat of exposing sensitive data records.

 

 

We concluded it was time for a cloud native data security platform, identifying the key success factors as:

1. Platform: buyers are looking for a platform that includes discovery, accurate classification, risk assessment and remediation
2. Ease of deployment: cloud buyers expect a “plug and play” solution with very short time to value (hours/days rather than weeks)
3. Cost efficiency: the technical challenge will be to infer the key risks from data and metadata while being smart in the scope and frequency of the scans at enterprise scale to be cost efficient

When we met Cyera, we knew that we’d found the perfect team to address this new category of security. We loved the passion, drive and ambition of Yotam and Tamar, Cyera’s two founders, and could see that the data and security background from their service in the Israeli military uniquely equipped them to address this massive opportunity. With the elite initial team they’ve assembled, they’ve managed to build their first product in record time and secure large six-figure deals while still in stealth mode. Cyera’s technology is the first time we’ve seen a data solution that has such quick time to value, full coverage, and ease of deployment and it explains why the CIOs and CISOs we spoke to immediately asked us for an introduction to the company.

 

We’re excited to announce today that we’re co-leading a $60M round with Sequoia and Cyberstarts in the company and look forward to working closely with Yotam, Tamar and the whole Cyera team to build the leading cloud data reality platform. Thank you Yotam and Tamar for choosing to partner with us!

 

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* See Accel 2020 Euroscape

 

** See Statista

“Focus is everything” - Melio's Matan Bar

 

This post is part of Accel’s Secrets to Scaling series, where leaders from across our portfolio share their learnings and advice with the next generation of European and Israeli entrepreneurs building global winners.

The first time I met Matan, Melio's co-founder and CEO, he told me that his mission was simple: he wanted to “help small business stay in business” by making B2B payments fast, simple and flexible. Coming from PayPal, Matan saw no reason why small businesses couldn’t pay their bills as easily as consumers send money on Venmo - in just two clicks. He and his co-founders Ziv and Ilan have made this happen, with the company now processing multi-billion dollar payment volumes just over two years after launch. 

Back in September, the company announced its $250 million Series D. As well as tripling the company’s valuation to $4 billion since January 2021, the round came as the company grew its monthly processing volumes by 5,000% in 18 months. I sat down with Matan to discuss his tips for hyperscaling with teams across two continents, the importance of focus, why the team set up a bookkeeper in New York, and much more…

Let’s start with your journey before starting Melio. You were head of PayPal consumer products, which is where you experienced first-hand the digitization of payments for consumers. And then you realised that there was a gap for B2B. So, tell us more about the inspiration for Melio…

At PayPal, I led the group responsible for peer-to-peer payments globally, and grew it to around $50 billion in payment volume, and more than a billion dollars in revenue. The growth was incredible; we rode the wave with the PayPal brand and the different products we’d built as consumers shifted from cash to mobile payments. 

Digitization really accelerated with products like PayPal, Venmo, Square Cash and Revolut. It became a new standard for paying friends and family. But I was shocked to discover that this digitization shift hadn’t affected the way small businesses paid each other. It still largely relied on paper-based payment processes. The Federal Reserve reported that there were around $14 trillion of paper checks transferred each year by businesses in the US alone - this was another big push for us to start exploring the space more. There was clearly an opportunity to make B2B commerce more efficient, and more suitable for 2021.

We started exploring this opportunity, trying to understand exactly why B2B was so behind consumer payments. We reached various conclusions that led us to building Melio and the products we created to enable a B2B payment experience. 

Tell me a bit more about the things you did to understand how small businesses work. You set up your own bookkeeping firm in New York, so I’m curious to hear your thinking around this and whether you think other founders should try and gain this first-hand understanding of the customer problem.

It was one of the most pivotal moments in our journey. When we validated why most small businesses in the US were still using paper-based methods to pay suppliers, we asked a simple question – “why?” Why do they continue to cling to paper checks and avoid using a digital accounts payable automation solution to enable B2B payments?

To answer this question, we interviewed different customers and prospects and quickly found that our understanding of the nuances of a B2B payment workflow wasn’t deep enough. We didn’t even know the right questions to ask small businesses so we became part of the small business workflow instead. We opened a small bookkeeping firm and managed end-to-end accounting and payables for 10 small businesses for around four months, purely for research purposes. The insights we gained from experiencing the B2B workflow firsthand helped us design a much more accurate solution.

One of the things that makes Melio unique is we bring a very consumer-oriented approach to a space that doesn’t live up to consumer product standards. When you really want to understand the consumer, you need to learn fast, see the reaction, learn from this, iterate and start building the next phase. Starting a bookkeeping service was the fastest way to engage with customers. Businesses would send us the invoices and tell us when and how to pay them. We’d then manually update the accounting software. Everything was manual - we didn’t write a single line of code! 

But we learned so much, our engineers could develop a product that would imitate many of the things we did manually. This deep consumer approach will hopefully support a product that’s suitable for our target audience for the foreseeable future.

So is that something you’d recommend for any entrepreneur?

Yes. Finding a way to engage with customers - fast - is usually a good use of time. When building innovative experiences, it can be very hard to take a top-down approach where you create a strategy presentation and then build the product from this strategy. Sometimes, a bottom-up approach is the only way. Build the product, see the reaction, learn from it, and move on.  

Let’s talk about your financing strategy. You raised four rounds within 18 months, waiting until your third round before coming out of stealth mode. What advice would you give entrepreneurs around fundraising strategy?

The round we did with Accel was in late February/early March 2020 – probably the worst time in the last 50 years to raise! Personally, I didn’t know what was going to happen with Melio as the pandemic was threatening to shut down small businesses and there was a huge amount of economic uncertainty nationwide. Accel took a bet on Melio in the most uncertain time we’ve experienced for a long while, which we’re very grateful for. In fact the term sheet was signed the day before the world went into lockdown!

The reason I mention this is that our fundraising strategy involves first and foremost choosing partners who are human beings that we’d like to join us on our journey. It may seem trivial, but this should be 90 percent of the consideration for any entrepreneur as building a business is a very long journey.

Picking people - humans - you want to work with longterm is the best strategy. 

We didn’t know what was going to happen at the end of February, but COVID accelerated digitization in many industries. Every time we set a goal, it would quickly look too conservative – we realised we could do more. We could grow faster than we thought, hire more people, build more initiatives, and reach more users. We understood that we could set higher goals and be faster and more aggressive. But this would need more resources. So we took the opportunity to do a second funding round in August. We could now hire faster, spend more on growth, and maintain the costs we want to maintain. Overall, we grew more than 20 times in 2020 and tripled our volumes over a very short period of time. But we saw we could move faster again, set higher goals and a new budget, and raised again. It’s a question of setting goals and understanding whether you can actually use the additional resources. If the answer’s yes, you should probably raise again. 

It seems to have worked well so far! Back to your personal story. Melio was your second company after The Gifts Project. Why did you decide to be an entrepreneur? What made you take the leap twice?

I love and feel lucky to be working in the fintech space. You can change lives through the combination of technology and finance. I realised through PayPal and my first startup the impact you can have on people’s lives when you make money better. Even when you make it slightly better it can be a game changer.

At PayPal, for example, I learned about the importance of financial inclusion and democratising financial services. I led groups that built products for the underbanked and unbanked populations in the US, providing access to financial products that were previously unavailable. Changing speed, changing costs, making money more efficient and transparent – I’m grateful that I know enough to help and have an impact on people and businesses.

When I decided to start another company, I wanted to create financial inclusion in an underserved market – providing tools that would set small businesses up for success and keep them in business. Large enterprises like Walmart have great tools to manage their finances, but a small wine shop owner doesn’t and including them in the financial system gives them some of the power of bigger companies.

I was lucky to have great partners – Ziv and Ilan – who wanted to build a company around the same time I left PayPal. I thought it would be fun to build something together, and it doesn’t get better than going from zero to one together when building a team, defining a new culture, or creating a product. 

What advice would you give on choosing co-founders? And how did you find Ziv and Ilan?

On a short-term project, you should probably pick partners based on skills and capabilities. If you intend to build a huge company and work together for at least 10 years, I’d advise picking partners with whom you share values, just as in a marriage. Being married to someone with conflicting values is going to be difficult…Shared values is the number one priority. Obviously, co-founders have to be good at what they do too!

One of the strengths Ziv, Ilan and I have is our diversity. We’re very different – we have different voices and opinions. Diversity has a cost and a lot of value. You need to know how to debate well as not everyone agrees all the time, but with so many different perspectives, you usually reach a more ideal outcome. 

And, of course, it’s important to pick people with relevant backgrounds for the success of your company. 

Ziv has been a friend since I was 16. He may be the most resilient person I know, and cares for people and the community. I’ve always known of Ilan. He’s one of the best-known CTOs in Israel and is considered a guru in AI and machine learning. I spent a ton of time with him in the year before we started working together. Again, as in a marriage, there’s often chemistry. I knew very quickly that he was someone I’d want to work with. And I was right - we get along better each day. 

Shifting gears…let’s talk about the US. Like a lot of Israeli companies, your product and R&D teams are in Israel while you target the US market. How did you make this happen so quickly? 

I had some experience of this from PayPal. The app was built in Tel Aviv and launched in 200 countries / regions where the US was the main market. We had to compensate for not operating in the main market where our customers were. 

With Melio, our customer-facing teams and business functions are all based in the US as it’s our target market. But we started an R&D centre in Tel Aviv because we have great access to engineering talent. And we’ve built a reputation here – personally and commercially – that helps us attract this talent. We’ve been able to attract people from Facebook, Google, Amazon, and other startups. Access to engineering talent in particular is one of the biggest challenges for any technology company globally and should always be a key consideration.

Being distant from the market is a disadvantage, though. You’re not using your own product in the country you operate in. So you need to ensure you set processes to keep your people engaged with customers, whether it’s weekly customer interviews, or having customer support and engineers working side-by-side every two to three weeks. When we have an all-hands, the sales team plays recordings of customers so everyone can hear their stories and voices. Having the processes in place to make sure the customer is central to the company’s content is a huge compensation for the company.

Regarding people and teams, how did you scale the company so fast across two continents, and ensure you hired the people with the right values and cultural fit? In the first phase, you can see everyone. In the second, you rely on people you’ve hired to hire more people. How did you think about this, and what’s your advice for other founders?

You and other investors gave me some great advice: “It’s OK to scale fast, but if you don’t have the right leaders in place, it’ll be chaos.”

We grew from 35 people in January 2020, to more than 400 by the end of August 2021 – an incredible pace. If I hadn’t had strong leaders for the US, sales, customer support, and R&D, it would have been chaos. So when you’re planning to build a team from zero to 50, you need to pick the right leader. 

For a long time, I was proud to have a culture that didn’t require us to set a policy. Anytime we could use culture rather than set a policy, I felt that was adding a million points to the probability of us succeeding as a company. Culture isn’t the annual fun-day, it’s when people come to work or go home, how they talk to each other in meetings, whether they’re inclusive and genuinely listening to other opinions. Getting to and then maintaining this culture depends on endless feedback between me and the people I manage, and vice versa. This feedback culture then extends to all teams across Melio.

If you want to change culture and instil values, do it while the company’s young. The personalities of the first people to join a company dictate the company’s personality.

There’s something contagious about the way a strong core group operates. But changing that five years from now would be much harder than changing it now.

Any other learnings you’d like to share on hypergrowth? What tips could you offer?

Keep the main thing the main thing. Everyone talks about all the right things, but there are so many right things you need a strategy to help you decide what to do. We’re pulled in so many directions, if we didn’t have a clear focus we’d try to do too much or diverge from our core strength. The strategy should reflect that strength, along with the company’s vision and mission. 

Focus is everything. If the priority is clear and right, you can afford to have more options around how you use the resources you have. 

You’re operating in a market where there are lots of opportunities, so it’s even more important. Let’s go to some more personal questions. Looking back to when you closed your Series A, what do you wish you’d known then that you know now?

Entrepreneurship means you need to be optimistic – good things will happen with hard work and a strategy. But there are a lot of unknowns. When people encounter unknowns, they tend to be more conservative, so there are certainly some areas where I should have been more optimistic and aggressive. Hindsight is useful but believing in your future self is important in entrepreneurship. 

Any life hacks or habits you’ve developed to cope with the pressures of being an entrepreneur?

Exercise – I think I’m 50 percent smarter when I work out. It helps keep me focused and sharp and make better decisions. Entrepreneurship is tough. There are many days when we work 15 or 16 hours. It’s important to make sure you fit in your exercise. It’s a critical activity for my day-to-day work. We also do different sporting activities in the office. Even when we were bootstrapping, we made sure we had a yoga instructor come in twice a week for the team as everyone found it really valuable. 

In closing, what’s been the hardest thing about building Melio that you didn’t anticipate? And what’s been easier?

The hardest thing is finding great people – at all levels, from hiring a great engineer to hiring a leader for a 100+ person sales team. It’s a combination of so many things, like personality and skills. And the market is becoming more competitive.

But like anything else in entrepreneurship, creativity wins. When you’re creative, and you find a unique voice, you find new solutions. 

I’m not sure what’s easier. The growth has exceeded our expectations, but that was surprising and super hard rather than easy! I don’t think there’s much about this journey that’s easy. If you want easy, there are other jobs out there… 

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Accel 2021 Euroscape: On the path to global dominance?

 

The Accel 2021 Euroscape was unveiled earlier today at SaaStock EMEA and you can view the full presentation here.

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The European and Israeli cloud ecosystem is accelerating as never before.

Back in 2016, Europe and Israel had only four public companies worth less than $9B combined and local cloud companies had raised just $900M throughout 2015. Today, Europe and Israel have generated 23 public companies worth $231B and private cloud financing reached c. $30B. The $900M of SaaS VC funding in 2015 now represents less than Europe's largest financing round, with Celonis raising $1B in June this year.

And the milestones don’t stop there: 

• Europe generated the largest cloud IPO of 2021, with UiPath closing its first day of trading with a $36B market cap
• Europe and Israel minted the two fastest cloud companies to hit unicorn status, with Wiz (14 months) and Hopin (17 months)

So now feels like the right time to ask: “Are Europe and Israel on the path to global dominance?” 

Before answering this, let’s take a look at what happened in the global software and cloud market over the last year.

Global market snapshot

The world now has 10 software and cloud giants worth more than $100B, representing $4.1T of market capitalization. This world of giants is dominated by one colossus: Microsoft. The company weighs in at more than half (55%) of the entire group and grew its market cap by $600B+ - more than the nine other companies combined! In 2014, when Satya Nadella succeeded Steve Ballmer and became CEO, Microsoft was worth $330B. The development of Azure and the shift to the cloud has propelled the company to new heights. 

Looking at newcomers, this year has seen two companies break the $100B market cap mark: ServiceNow and Square, pushed by the rise of enterprise automation and digital payments respectively. One of the 2020 giants also left this select club: Zoom, which was impacted by the failed acquisition of Five9 and people’s gradual return to offices.

Beyond the giants, the momentum continues for the public companies in our global cloud Index. The Index added another $0.9T in value in the past year and the pace of growth is accelerating. The average growth rate of the companies increased from 18% last year to 26% this year. While the average forward revenue multiple has declined slightly since its February 2020 peak (19x), it’s still higher today than last year at 17x vs 15.8x in Sept 2020.

The cloud IPO market has also been very active with 32 IPOs vs. 17 in 2020. It’s worth noting though that while the number of IPOs increased, the companies were smaller and raised less capital than those last year. In 2020, c. 60% of the cloud IPOs had a market cap of $5B+ vs. only 28% this year. As the IPO window was pushed wide open and multiples reached new highs, the public market tempted smaller companies while the 2020 crop was more mature. The beginning of the year also saw a lot of hype around SPACs, but few cloud companies chose this route to go public (only 11 in Europe, Israel and the US in 2021) and their average market cap was on average less than half of the IPOs. 

On the M&A front, while 2021 has seen one of the largest ever cloud acquisitions - Salesforce’s acquisition of Slack for $28B - the year’s top three strategic M&As (Slack, Mailchimp, Auth0) represent only $47B. This number looks relatively low compared to $330B+ of cash and cash equivalents sitting on the balance sheet of the cloud giants and public companies in our global cloud Index. It seems that the high multiples we’re seeing on the private markets are deterring public companies from actioning some M&As but we should expect this dry powder to be put to work at some point, if the multiples are correct.

Private is the new Public

The private cloud financing market is firing on all cylinders. While last year was a record-breaking year, 2020 now looks small in comparison to 2021 to date. Private cloud companies in the US, Europe and Israel have raised a whopping $78B YTD. Annualised, this would be 2.7x larger than last year! The number of unicorns has also nearly doubled from 131 to 226. The pace of innovation we’re seeing in the cloud ecosystem is unprecedented, driven by the continued shift to cloud infrastructure, the need for more automation to support digital transformation, increasing security challenges and the growing amount of data to be managed and leveraged for insights and machine learning.

What’s even more remarkable is that the amount of financing poured into private cloud companies dwarfed the amount raised by public cloud companies in 2021, as hedge funds like Coatue, Tiger and Dragoneer are turning their eyes to the  private tech markets. 

Europe and Israel ecosystem reaching escape velocity

While the global cloud market is growing fast, Europe and Israel are accelerating even faster. Leveraging 20+ hubs across the region, an unparalleled level of entrepreneurial talent and ambition, and full access to global capital markets, European and Israeli cloud start-ups no longer have to envy their US counterparts. And the numbers speak for themselves. In the past 12 months, Europe and Israel have generated 11 new IPOs vs. 3 in 2020 and the total market cap of public Europe and Israeli cloud companies has reached $231bn, up more than 2x from last year. These 11 new public companies have raised a total of $6B, including three monster IPOs which account for 55% of this amount (UiPath, SentineOne and Monday.com).

On the private side, the magnitude of the growth is also unprecedented with c. $30B raised by Europe and Israel’s private cloud companies, a 3x jump from last year. This influx of capital has pushed the number of unicorns up from 44 companies in 2020 to 81 companies this year. With financing rounds now reaching several hundred million, these new unicorns now have firepower that private companies have never had before. This money is actively invested in product - with roadmaps fast-expanding - and M&As, with unicorns acquiring products and talent across regions. For example, Snyk has recently announced a number of acquisitions. This increased ambition and footprint is recognised by investors, as 14 of these unicorns are now valued at more than $5B vs. just two in 2020. 

These 81 cloud unicorns have a combined value of $234bn, which is close to the $231bn of their public counterparts, pointing towards a promising IPO pipeline for the next couple of years.

Looking more closely at the region, Israel is undeniably emerging as a cloud unicorn factory, with 16 new unicorns in 2021 (around a third of the total minted this year to date). Israel also has the largest number of unicorns per capita, with 2.9 unicorns per million people, which is significantly larger than the 0.1 - 0.3 in other major hubs (France, UK, Germany). The key to Israel’s cloud success is due to a number of factors, including:

• Incredible talent coming from its military intelligence unit 8200 and local offices of large tech companies (developed through historical M&As)
• Expertise in areas supported by secular trends: cloud security, infrastructure and payments
• A dense network of seed funds poised to invest large amounts at a pre-product stage ($5-10m)
• Access to global capital at growth stage

Are Europe and Israel on the path to global cloud dominance?

Going back to the question we posed at that start, our answer is: yes, the gap that has long existed between European and Israeli SaaS companies and their US counterparts is now closing. All of the data points to the fact that Europe and Israel are on the path to be as fertile as the US - and potentially even more - in the coming years. In terms of the public company figures, there may have been fewer IPOs from European and Israeli companies (11) compared to the US (21), but the metrics are comparable:

And it’s a similar situation when it comes to the region’s cloud unicorns:

Similarly, while the US continues to lead when it comes to private cloud funding volume ($48bn vs $29bn), the rate of growth year-on-year is higher in Europe and Israel (3.2x vs US’ 2.4x). Will we see the gap completely close over the next 12-24 months? We’ll have to see what next year’s data reveals, but what’s certainly become clear over the past year is that the cloud world is a very different one from the one we mapped back in 2016.

The world of cloud is now flat

At the end of the day, which region attracts the largest amount of capital isn’t the most important point. What matters most is that innovation in the cloud can now come from anywhere. Accel has been a big believer in cloud since the early days of this shift. The firm was founded more than 35 years ago and the team quickly realised that innovation was not confined to Silicon Valley. We opened our office in London in 2000, followed a few years later by Bangalore. To date, we’ve invested $7B+ in more than 300 companies globally and have worked with many exceptional cloud founders - from Australia to India, the US, Europe and Israel. It’s inspiring to see that the world of cloud is now flat and any region can generate a category defining company, from Atlassian in Australia to UiPath in Romania, Celonis in Germany, Snyk in Israel, and Docusign and Crowdstrike in the US.

What’s next?

Looking ahead to what 2022 may hold, there are six key trends we see accelerating:

• More automation: AI increasing complexity of use cases - The range of use cases for automation will expand to address more complex business processes. In addition, the digital transformation momentum will continue to increase automation requirements and more organisations will create fully automated value chains. We’ll also see the emergence of more low code / no code platforms that address specific vertical needs.
• AI will change the content creation paradigm - New algorithms and deep learning solutions are lowering the bar when it comes to creating highly-realistic content. For example, programmable avatars using a simple text editor. There’ll also be an increasing range of AI uses-cases, from AI-assisted video and picture editing through to synthetic video and voice, and 3D pictures for ecommerce. With algorithms progressing, AI will likely allow for even more real-time content creation, unlock marketing use-cases with deep levels of personalisation
• Security focusing on cloud - As business applications and IT infrastructure will continue to shift to the cloud the need for cloud security will continue to increase and address misconfigurations and code vulnerabilities. The distributed workforce will continue to add impetus to the zero trust architecture imperative and infrastructure as code will lead to the convergence of code security, application security and cloud security.
• API-ification of fintech infrastructure - Banking infrastructure tooling is now productised and also targets non-fintechs. Outsourcing compliance and API-first implementations shorten lead times. Access to non-banking data, such as payroll, insurance, credit and ERP, through APIs is enabling new use cases. 
• The rapid rise of crypto and DeFi infrastructure - Institutional demand is rising and major banks and payments players are now incorporating crypto payments / custody. In addition, consumer demand is exploding as online exchanges, neobrokers and digital banks act as enablers and new use cases are emerging. For example, DeFi and NFTs. Continued development of Ethereum and other protocols is also resulting in increased scalability
• Increased infrastructure for the anywhere workforce - As the world shifts to a hybrid workplace, mixing office and remote work, the need for new collaboration tools is set to increase. With the rise of remote working, companies will be pushed to look further afield to hire talent, which will result in challenging compliance issues. The need to make effective use of internal talent will be greater than ever and AI will unleash a new generation of talent marketplaces

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“To build a community, you need to focus much more on the user than on the buyer” - Snyk’s Guy Podjarny

 

Cybersecurity unicorn Snyk was founded in 2015 with the mission to help developers make their code secure. Just a few years on and Snyk has evolved from being an open source vulnerabilities scanner and to becoming the world’s first developer security platform that start-ups worldwide can build upon. Snyk customers and users collectively have run more than 300 million tests in the last 12 months and fixed more than 30 million vulnerabilities in the last 90 days.

 

As the company announces its $530 million Series F at a valuation of $8.5 billion, it’s clear that Snyk is driving the industry’s shift to a new developer-centric approach to security and is now the undeniable leader in this space. In 2021 so far, the company has:

 

• Increased annual recurring revenue by 154% year-over-year
• Grown its customer base to 1,200+ companies, including established enterprise leaders and emerging hypergrowth technology companies
• Hired and onboarded 320 employees, projecting 800+ by year end
• Delivered more than 40+ new product features
• Acquired FossID to expand license compliance and C/C++ capabilities

I sat down with co-founder Guy Podjarny to get his tips on building a community, how to deal with hypergrowth, the importance of having people across multiple offices and continents feel like one team and more…

 

Let’s start with your entrepreneurial journey. You’re a serial entrepreneur - some of your companies have been acquired and Snyk’s a great success. What attracted you to entrepreneurship, coming out of the 8200 Intelligence Unit?

 

I’ve always been interested in creation, in finding problems, and figuring out and creating solutions. That’s what I found most attractive about software development: building things. And I’ve always taken initiative. As an employee, I never waited for instructions to do something. So at some point I concluded it’d be an interesting adventure to try and actually found a company.

 

I was at IBM at the time. They’d acquired a company that had acquired a company I was at, and I didn’t want to stay there – it wasn’t the right environment for me. Founding my own company made sense. The idea, and how to tackle it, were secondary considerations. It was really all about building and creating solutions. 

 

Even within companies, I found myself constantly looking for the next mountain, and how I could learn something new. How could I grow my impact? That always brought me back to looking for bigger problems to solve. The specific idea would always come afterwards. 

 

What was your approach to picking co-founders, and what advice would you give entrepreneurs on this?

 

I think having a co-founder is very important. The entrepreneurship journey is hard. Founding companies is an emotional roller-coaster - you have highs and lows, sometimes several times a day, and they can get pretty extreme. You need close partners in that journey and you get many sorts of partners - investors, employees etc. - but you need someone who’s into the cause and all in with you. I’ve seen people succeed as solo founders – but I think not having a co-founder makes an already hard journey that much harder. For me, it was clear I needed a co-founder and that they could bring in a relevant skill set that I didn’t have.

 

Mike Weider, my co-founder at Blaze, was a much more experienced, technology-minded business person than me, and much better connected to the VC world. So, while he was CEO, leading the company and helping to fundraise, I focused on building the technology and product.

 

For Snyk, I was based in London, and wanted a branch in Tel Aviv, building a security company. I needed someone who was all in with me in Israel and wanted them to be the opposite of what I had with Mike at Blaze – I wanted someone who’d drive the technology while I could evolve as a CEO and build out the go-to-market strategy. A complementary relationship is important. You need to have enough overlap to communicate well and build the same thing together, but not so much that you’re both redundant.

 

It’s important, too, to have some background with your co-founder, or certainly a strong reason to believe you’ll enjoy spending a lot of time together. You’ll be persevering through some very hard times and it’s a long journey. The co-founder / marriage analogy is apt. If you fall out, the “divorce” can be very painful. I think not having any history together can be super risky.

 

You mentioned you first wanted to build a company and then try to find the idea. What was the lightbulb moment for Snyk?

 

The idea came to me in the shower! I’d been in security for over a decade, building application security solutions, but we weren’t successful in persuading developers to embrace them. In hindsight, I realise we built security solutions that we integrated into a development environment but we didn’t build the tools to be developer friendly. 

 

I left security and founded Blaze, a web performance company, where I spent seven years or so at the front line of the evolving DevOps movement. I learned to appreciate two things. The first was that DevOps changed the world of software. It really drives everything into these independent teams that will run, and security has to be a part of the movement, or we’re never going to be secure. The only way to scale security is to have security built into these development teams’ activities. The second thing was that DevOps gives us a playbook - it has taught us how to build great developer tools that are embraced by developers. That was my lightbulb moment - what if we build a DevOps tool that tackles security? 

 

I think ideas through by talking about them. The more I talked about this one, the more convinced I was that it was necessary. I wouldn’t let it go and it evolved into what we today call “dev first security”. The rest is history. 

 

Did you have to work hard to convince (co-founders) Assaf and Danny to join?

 

They were both about to found a different startup, so I didn’t need to convince them to found a company – I just needed to convince them to join mine! Fortunately, they weren’t too far along with their idea. It was still fairly abstract, while mine was very concrete and compelling – and, because of my past relationships with the investors, I already had funding lined up. I visited Israel and, after a bunch of meals together, they decided to join. It wasn’t easy, but it wasn’t the hardest part of the journey. 

 

When you started Snyk, did you think about the importance of building a community from the offset, and is that what drove your decisions in terms of building and architecting the product?

 

Everything you build in a company or solution should really revolve around the eventual users’ pains and needs – especially if you’re building from the bottom up. Snyk was a developer-first security company. The whole thesis was to build a developer tooling company that tackled security. Everything about it was built through that lens.

 

The go-to-market strategy was to start free and open source and grow from there. The community approach is instrumental to the developer tooling landscape. Developers look to the open-source community to see what’s being used there; they ask their peers; they like to try before they buy – to get their hands dirty. Everything was designed to mimic what I believe to be best-of-breed developer tools. 

 

The other model we had was DevOps, and we wanted to bring security back into the fold of DevOps. It’s a community movement, rather than a technology or specific practice. So it was important to mobilise the notion of developers needing to take on security and to help them embrace it. This drove a lot of educational activities within this conceptual community, which led to business impact from the bottom up, while the freemium self-service model helped us get people on the platform and start tackling that mission. 

 

What tips would you give to entrepreneurs who want to build a community – particularly a developer community?

 

First, you have to think about the user. If you’re talking about a bottom-up play, it needs to focus much more on the user than on the buyer. You need to ask how these users find out about and consume technology, and orient your presence toward this. In the case of developer tools, discovery and usage are often very community-based. 

 

You also need to think about whether you’re trying to get these communities to embrace a new practice. Sometimes you’re shipping products that are doing something that’s already been done, they’re just doing it better. So you might just need greater awareness and reach. But if, like Snyk, you’re trying to change behaviour and persuade a community to embrace a new practice, you may want to think about thought leadership, and maybe even investing in certain communities. 

 

Finally, if you’re building a platform, and you want to pull people in to create plugins and additions – especially if it’s open source – you should also think about appealing to a community of builders. This is similar but not identical to the community of users.

 

One thing that’s been particularly impressive is the speed at which Snyk expanded internationally. Starting in three cities - Tel Aviv, London and Boston - at almost the same time helped, but can you walk us through how you thought about building a global company from day one? What have you learned from it?

 

The company started as a two-headed monster, evolving into three and four heads with Ottawa and Boston. We ensured each office – with its own talent pools – was part of one team. We intentionally divided the teams so they never existed in one office alone – each was present in at least two offices. This required more effort but it also forced us to write things down and communicate asynchronously.  

 

Bringing together people, perspectives, skills and opinions from different locations prevents an “us versus them” mentality

that can arise when every office specialises in a particular topic. There’s a lot of family and cultural value in having local presences but as part of a global company, and it’s an approach that’s helped as we’ve continued our international expansion. “One team” is one of Snyk’s core values

 

Commercially, it’s all about reach. The technology problem, the people problem, and the user pain the company solves are international. Anyone embracing DevOps that cares about security should use Snyk’s solutions to help them build security into their software development practices. The whole go-to-market motion is product-led and has naturally expanded globally so it’s been international from the beginning. We let the technology community spread it wherever it may go and then complemented this with an inside sales team, supporting anybody coming in and wanting to upgrade. This team then grew, becoming more time-zone friendly, evolving internationally, but always with a local presence. 

 

Instead of pursuing big economies, we’ve followed the users, and grown in the Nordics, the UK, and Spain. In the complicated APAC market, we’ve had to combine the community adoption concept with an intentional presence, as well as an understanding of how business is conducted regionally and how to reach local communities. As at the beginning, we’re helping users in the region embrace the product by fulfilling inbound demand, and reaching out to similar users to ensure they’re aware of Snyk. 

 

Snyk went from low single digit revenue to $100 million+ in ARR in a record time, which is amazing. What did you learn in terms of hyper-growth and the shift from being a founder leading a small team to hundreds of people?

 

One of my key learnings is to

 

think further ahead than you originally believe – especially when hiring.

When you’re hiring leaders, you need people who’ll stretch to the full scope of responsibilities you’ll give them. In hyper-growth, that scope will multiply many-fold within a year or two. You don’t want to be in a position where, after your company has doubled or tripled in size and scope of activities, the person you’ve hired is suddenly in the biggest job they’ve ever done. It’s tempting to take a leap of faith with an external hire and think they’ll be able to stretch to the size, but it’s risky. You should only do this with internal hires who you feel can take the role on.

 

Secondly, don’t underestimate infrastructure. Putting something in place - like an internal system, for example - to suit the needs of your company today is risky. In a year’s time, when you’ve grown, that system will likely be too small for you and need replacing again. I’ve appreciated thinking a few steps ahead and investing in something that felt a bit too big at the time but suited our needs a year or so later. The future is closer than you think when it comes to both people and infrastructure!

 

And, finally, define clear boundaries. Once you’re successful, and opportunities are plentiful, your biggest enemy is a lack of focus. You must balance taking on new opportunities and not spreading yourself too thinly. By agreeing on certain boundaries for six or 12 months, it becomes harder to deviate from them. We drew a line while deliberating whether to do certain things or partner with certain companies. It made decisions easier, and helped everyone in the organisation maintain focus. 

 

After being CEO for the first four years, you hand-picked Peter McKay to take over in that role in 2019. Can you talk about that decision? 

 

Like picking co-founders, picking a CEO to lead the company at the right time is a crucial decision. Peter and I have known each other for eighteen years. When I was at Watchfire building AppScan, Peter was the President and CEO, and when I started Blaze and Snyk, I asked Peter to be on our Board of Directors. As I built Snyk over the years, it became clear that the market opportunity was enormous and that my role as founder was to ensure the longevity of our developer security vision, including our technology evolution and product roadmap. And, as we reached GTM maturity, it also became increasingly obvious that we were ready for an experienced operator like Peter to partner with me. Given that Peter was already on the Board, it was truly a no-brainer and then ultimately a seamless transition.

 

Looking back at when you closed your Series A in 2018, what do you wish you’d known then that you know now?

 

Many things! My earlier point about hiring is one. I think I’d equip the business better in terms of data. Back then I could just about hold the business in my head and understand what was moving. I had enough exposure to deals, product features and such that I could make good decisions and the exec team could make good decisions based largely on intuition. But as the business grew, this became dangerous as I’d have less detail on what was really going on. So I’d have invested in more data around the business and product, and become a more data-driven organisation at that time - it’s less painful to do this earlier on.

 

Snyk’s been very proactive throughout its lifecycle, raising rounds ahead of time. What advice would you give when it comes to choosing an investor, and the timing of financing?

 

Most importantly, an investor must be someone you get along with. You’re going to spend a lot of time with them. Just as with co-founders, you need to be happy about this, and feel like you’re having productive conversations. Even if they’re great at what they do, they may be the wrong fit for you personally. 

 

I’m a fan of stage-appropriate and stage-focused companies. Different funds and partners excel at different phases. I’m sure there are amazing individuals and companies that go all the way from seed to super-growth, but there’s a mental state and organisational setup for firms more attuned to just a couple of rounds. Be mindful of the stage you’re in.

 

You also want investors to have knowledge and experience in areas you appreciate. It could be a market, like DevOps in our case, or it could be a stage. Ask yourself - what do they know that I can tap into and benefit from? You want to have investors that can help you a lot and add a lot of value in a little time.

 

That makes a lot of sense. What’s been the hardest part of building Snyk that you didn’t anticipate, and what’s been easier than you expected? 

 

The hardest thing has been saying no to exciting opportunities in the name of focus.

You see many things on the road ahead, but you have to stagger them. I can’t do everything. If I try, it’s gonna fail!

 

The easiest was finding funding when things were going well. I think the market’s set up for investors to actively find companies that are succeeding. Capable investors found us more easily when we were doing well. I don’t think it’s a coincidence. The best investors have their ears to the ground and will find you.

 

And, in closing, are there any valuable life hacks or habits you’ve developed over the years to cope with the demands of founding a startup?

 

Whether it’s relaxing or spending time with the family, define your non-work boundaries so you don’t need to decide on them every time.

 

For me, I leave the office at 6:30pm and go home to have dinner with my kids and might be back at my computer at 9pm once they’re in bed. I also try not to travel on weekends and do back-to-back trips. It’s an approach that’s helped me stay sane and feel like I’m not constantly working.‍

 

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Read our Secrets to Scaling interviews with:

 

- Personio's Hanno Renner here

 

- Chainalysis' Michael Gronager here

 

- BlaBlaCar's Nicolas Brusson here

 

- Supercell's Ilkka Paananen here

 

- Miro's Andrey Khusid here‍

 

- Trade Republic’s Christian Hecker here