2016 june disruption in enterprise software final

www.intelcapital.comIntel Confidential

Investing in global innovation

June, 2016

Disruption in Enterprise Software

Vibhor Rastogi, Director, Intel [email protected]

2 www.intelcapital.comIntel Confidential

Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software

• SaaS/Cloud• Big data/Cognitive applications/Real-time workloads• Open Source

3 www.intelcapital.comIntel Confidential3

Market Leader

* Number Includes New and Follow-on Deals Investment data as of March 31, 2016


A Proven Track Record of Engagement• Investments ranging

from $250,000 to $250 million+

• Any stage of funding• Lead or supporting

investor• Agile decision-making

• Unparalleled network of Global 2000 companies

• Resources beyond capital

• Active board participation

• New and follow-on rounds 4 Investing $300 - $500 million per year in innovative

companies


A Global Presence Like No Other• US $11.7 billion invested in 1,445 companies in 57 countries• Proven ability to connect startups to international technologists and partners

Intel Capital Invested

5


6*other marks and brands are the properties of their respective owners Data as of March 31, 2016

Solid History of Success212 portfolio companies have gone public; 383 were acquired or participated in a merger



• SaaS/Cloud• Cognitive applications/Real-time workloads• Open Source


Spend on Software growing 2x than Enterprise spend. Sub-sectors such as SaaS growing at 6x overall IT spend

2013 2014 2015$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00

$4,000.00

$4,500.00

$300.00 $317.00 $335.00

$3,673.00 $3,737.00 $3,828.00

Global spend on Enterprise Software ($B) vs. ICT spend ($B)

Enterprise Software spend ($B) Total ICT spend ($B)

Source: Gartner


Software (with smart hardware) is eating every industry including those that are digital laggards – Agriculture, Healthcare and Transportation

Healthcare: Basis smartwatch used to collect patient data for Parkinsons patients and analyzed in the Cloud

Agriculture: Precision Hawk drone being used for mapping of agriculture fields

Transportation: Peloton fleet management software helps reduce fuel consumption

Source: MGI


VC investment in Software has grown in the last 5 years due to better liquidity (IPO and M&A) environment

20092012

20142015

$17.70 $26.70

$49.30

$59.06

$3.19 $8.28

$20.21 $23.62

Software investment by VCs

Total VC investment ($B) Software investment ($B)Source: NVCA


Next-generation software companies trading at significantly higher multiples of revenue than legacy software companies

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

$- $50,000

$100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000

Market cap ($B)

Microsoft Oracle SAPVmware Workday Salesforce

Source: CapitalIQ


M&A market for high-growth software companies is stronger than ever

May’16 -Textura acquired for $552M

Apr’16 - Opower acquired for $683M

June’16 - Symantec acquires Blue coat for $4.9B

June’16 – Salesforce acquires Demandware for $2.9B

June’16 Microsoft acquires Linkedin for $26B

Acquirer Targets

Source: CapitalIQ


Software companies with strong cash flow also good targets for PE

Jan’15 - Informatica taken private by Premira for €4.7B

Dec’14 – TIBCO taken private by Vista Equity Partners for $4.7B

June’16 – Qlik taken private by Thoma Bravo for $3B

Source: CapitalIQ


The IPO market slowed down in 2015 due to underperformance of companies that went public. Twilio’s strong after-market performance expected to benefit pre-IPO private companies

Private Software Companies >$1B valuation


SaaS market has grown 4x on-premise software and has created several multi-billion dollar market-cap venture backed companies

Venture backed success stories

$47B Market cap*

$14B Market cap*

$11B Market cap*

Source: CapitalIQ, as of June 30 2016


Public Cloud spend growing at 50% CAGR (2009-2015) making it easier than ever for software companies to develop, test and deploy SaaS applications


Improvement in ROI is a significant driver for SaaS spend


SaaS companies need significant capital prior to a liquidity event

• SaaS is a capital intensive business Model

• Median amount raised by SaaS companies >$50M


What are next-gen SaaS companies focused on?• Applications powered by Machine

learning, e.g, Next-gen B2B sales and digital marketing powered by machine learning and predictive analytics

• Video powered B2B collaboration, e.g., employee recruiting, customer service

• Analytics embedded in the SaaS applications vs. a separate enterprise data warehouse

• Beautiful user interface and consumer marketing DNA

• Mobile first strategy• Social collaboration built into the

product• Expertise in Vertical markets – e.g

Healthcare, Commerce, Transportation



• SaaS/Cloud• Cognitive/AI applications/Real-time workloads• Open Source


Lower compute and storage costs accelerating adoption of Big data by Enterprises

22


Big data problems are a top priority in IT spending

23


45ZB of data expected to be created by 2020 which coupled with cheap compute creates rich datasets for Cognitive computing/AI

24


Cognitive Computing/AI is a nascent market segment today but expected to grow quickly


Cognitive computing/AI is disrupting every major industry

• Fintech - Automated lending decisions, wealth-management

• Retail – Personal Concierge• Media - Programmatic buying• Education – Personalized curriculum• Transportation – Autonomous fleets• Agriculture – Autonomous vehicles for precision

agriculture• Manufacturing – Industrial robotics• Healthcare – Automated claims processing.

Clinical decisions (couple years away)• Horizontal use cases

• Personal assistant• Sales and Marketing • Help desk• Recruiting


“Flood” of machine (45% of data created by 2020) and social data, falling cost of memory creates the need and opportunity to run analytics in real-time vs. traditional store and process

Security Event

Processing

Risk & FraudAlerting

Quality of Service Management

Consumer Analytics

DataCenter Management


Next-gen web/mobile applications leveraging data stored in Big data repositories

Personalized Gaming/Adtec

h

Recommendation Engines

User and Behavior analytics


Open source disruption

• Linux disrupted the $150B data center market

• Android disrupted the $1.5T mobile market

• Hadoop and Spark disrupting the $100B analytics market

• Which other markets can open source disrupt?• Autonomous cars?• Enterprise IoT?• Machine learning?• Vertical SaaS?

30


Linux and Android grew significantly faster than their commercial alternatives to dominate the data center and mobile markets

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 $-

$200.00

$400.00

$600.00

$800.00

$1,000.00

$1,200.00

$1,400.00

$1,600.00

$1,800.00

$2,000.00 RedHat revenues

25% CAGR, 4

x Soft

ware

growth


Open source has gone mainstream. Every commercial and governmental organization worldwide uses open source. Most technology companies are significant contributors

Web 2.0

Government

Enterprise

High-Tech


Open Source Business models for startups to consider

Support• Give software

away for free• Charge for

support• Examples

33

Open Core• Core

functionality is free

• Premium features are paid

• Examples

Leverage Open Source• Commercial

product built on open source

• Examples


Key takeaways• VC interest in Enterprise Software continues to accelerate• Ample liquidity/exit options available to high-growth software

companies with the right unit economics via M&A, IPO and PE markets

• The virtuous cycle of Cloud, Open Source software, Big data and Cognitive computing will create the next trillion dollar of market cap in Enterprise Software