Coronavirus created ‘iPhone moment’ for cloud software, says venture capitalist Byron Deeter

When he unveiled a new cloud computing index in 2013, Byron Deeter of Bessemer Venture Partners noted that the industry had just hit a major milestone, topping $100 billion in combined market cap. 

Seven years later, that number looks trivial. Three companies in the group — Adobe, Salesforce and PayPal — are each worth more than $200 billion. Zoom is worth over $120 billion just 16 months after its IPO. The BVP Nasdaq Emerging Cloud Index, which includes more than 50 publicly traded cloud software vendors, is valued at over $1.7 trillion. 

The cloud trend is well into its second decade now, but the coronavirus pandemic of 2020 has ramped it up dramatically, turning popular tools into fundamental technologies. With offices forced to shut down across the globe and employees dispersed and working from home, a host of products designed for remote communication, collaboration, productivity and data storage have become critical to keeping businesses functioning.  

The BVP Nasdaq Emerging Cloud Index is up 71% this year, topping the Nasdaq and S&P 500, which are up 31% and 8.5%, respectively. Deeter says this period reminds him of 2007, when Apple jumped into the smartphone market.

“It’s essentially that iPhone moment where there’s a convergence of a number of forces that accelerated this trend that was already taking root,” Deeter told CNBC’s A View from the Top. “Suddenly, when people have to work from home, on-premise software, by definition, doesn’t work or is clunky, and you start to realize that distributed collaborative systems can be better. Decisions that had been on the back burner that were viewed as important but not urgent are suddenly now also urgent and pulled forward.”

Zoom on Monday reported 355% growth in its latest quarter, and CEO Eric Yuan said in a statement that customers are “supporting a future of working anywhere, learning anywhere, and connecting anywhere.”

Zoom is the best-performing stock in the BVP index this year, up about sixfold, but there’s been plenty of growth elsewhere. Fastly, whose technology speeds the delivery of digital content, is up more 350%. 

DocuSign, a provider of digital signature software, has jumped over 220%. Shopify, whose software powers e-retailers, and communications technology company Twilio are both up more than 160%. All three were early Bessemer investments.

There’s “just this whole class of companies that were essentially purpose-built for distributed collaborative cloud-based interaction and communication,” Deeter said. “A large part of the reason the economy is holding up and why people are still able to do business is that we have cloud platforms that allow it. If this had happened 10 years ago even, it would’ve been a very different experience. Business would have been broken and the social interaction piece of this would have been much harder.”

The Bessemer index had 30 components when it was formed, and now is up to 54. The number is set to go even higher in the coming weeks, as several cloud companies, including cloud data warehouse Snowflake, work-management software provider Asana and data analytics vendor Sumo Logic, have filed their prospectuses to take advantage of the bull market.

Deeter said a lot of other cloud companies could go out next year, depending on broader market and economic conditions.

“It’s staggering how many high-quality companies are backed up in the medium-term queue that in prior times would’ve been public by now,” he said. “Dozens and dozens of fabulous cloud companies worth more than $1 billion are sitting there slow-rolling this event and waiting for a stronger more stable 2021.”

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