www.intelcapital.comIntel Confidential
Investing in global innovation
June, 2016
Disruption in Enterprise Software
Vibhor Rastogi, Director, Intel [email protected]
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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
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Market Leader
* Number Includes New and Follow-on Deals Investment data as of March 31, 2016
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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
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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
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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
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Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive applications/Real-time workloads• Open Source
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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
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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
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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
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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
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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
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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
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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
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Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive applications/Real-time workloads• Open Source
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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
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Public Cloud spend growing at 50% CAGR (2009-2015) making it easier than ever for software companies to develop, test and deploy SaaS applications
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Improvement in ROI is a significant driver for SaaS spend
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SaaS companies need significant capital prior to a liquidity event
• SaaS is a capital intensive business Model
• Median amount raised by SaaS companies >$50M
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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
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Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive/AI applications/Real-time workloads• Open Source
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Lower compute and storage costs accelerating adoption of Big data by Enterprises
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Big data problems are a top priority in IT spending
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45ZB of data expected to be created by 2020 which coupled with cheap compute creates rich datasets for Cognitive computing/AI
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Cognitive Computing/AI is a nascent market segment today but expected to grow quickly
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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
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“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
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Next-gen web/mobile applications leveraging data stored in Big data repositories
Personalized Gaming/Adtec
h
Recommendation Engines
User and Behavior analytics
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Agenda• Overview of Intel Capital• Venture Capital/M&A/IPO trends in Enterprise Software• Key disruptions in Enterprise Software
• SaaS/Cloud• Cognitive applications/Real-time workloads• Open Source
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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?
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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
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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
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Open Source Business models for startups to consider
Support• Give software
away for free• Charge for
support• Examples
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Open Core• Core
functionality is free
• Premium features are paid
• Examples
Leverage Open Source• Commercial
product built on open source
• Examples
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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