Metrics that Measure Up — “State of the Cloud 2023: Top Five Predictions”

Guest: Janelle Teng, Vice President at Bessemer Venture Partners
Host: Ray Rike
Date: May 24, 2023
Episode: #2

Episode Overview

In this episode, Ray Rike sits down with Janelle Teng of Bessemer Venture Partners to discuss the key findings and predictions from Bessemer’s influential “State of the Cloud 2023” report. They deep-dive into the top five predictions for the cloud and SaaS ecosystem, focusing on efficient growth, the transformative impact of AI, climate-oriented cloud solutions, and recommendations for aspiring SaaS entrepreneurs and investors. Janelle shares actionable insights and offers optimism about the future of cloud innovation.

Key Discussion Points & Insights

1. Efficient Growth: A New Imperative

[01:23 – 05:34]

• Shift from Growth at All Costs to Efficient Growth:
  Janelle notes that after recent market pullbacks, cloud/SaaS companies rapidly shifted to prioritizing efficiency alongside growth.
  • “There is now a rising imperative for efficient growth.” (Janelle, 01:23)
  • Adoption of cost optimization tools—including FinOps software, SaaS purchasing solutions, and engineering productivity tools—is accelerating as companies seek to control their cloud and software expenses.
• Cloud Spend as a Key Lever:
  • Cloud infrastructure (AWS, Azure, GCP) is a large cost that affects gross margins, crucial for long-term SaaS business health.
  • Companies now use dedicated tools and even refactor codebases for efficiency and lower infrastructure costs.
  • “Public cloud companies with gross margins under 50% structurally find it difficult to then drive over 20% of free cash flow margin.” (Janelle, 03:16)
• Resource for Founders:
  • Bessemer’s open-source tactical playbook lists 40 tactics for efficient growth, specifically naming software that improves gross margin.
  • Available in their "Atlas" newsletter as “A CEO's tactical guide to Driving Profitable Growth.” ([05:41])

2. The AI Revolution: Value to the End User

[06:00 – 13:48]

• AI as the Defining Trend:
  • AI, especially generative AI and large language models, is a central focus for Bessemer’s predictions in 2023.
  • Unlike earlier tech waves, end users—not just enterprises—now have immediate access to powerful AI via APIs and open-source models.
  • “The ultimate winner in this AI chapter is probably the end user, since AI will create massive consumer surplus.” (Janelle, 07:24)
  • Example: ChatGPT’s record-breaking adoption demonstrated direct-to-consumer innovation and how individuals will pull AI into workplaces.
• Product-Led and “B2C to B” Growth Flywheel:
  • Janelle introduces Bessemer’s “B2C to B” model—consumer excitement and familiarity with AI drive rapid enterprise adoption.
  • “...This consumer excitement is really fueling enterprise readiness at rapid speed.” (Janelle, 09:14)
  • Individuals master tools personally, then introduce them into work, dissolving traditional barriers between consumer and enterprise software (“product-led growth”).
  • “If I can use AI to summarize my notes and my to-do list, why can’t I use that to summarize my notes at work?” (Janelle, 09:41)
• AI-Driven Hyper-Growth:
  • AI can massively accelerate company scaling; AI-native firms could halve the time needed to reach $1B in revenue.
  • Early movers see exponential traction compared to traditional SaaS growth stories like Twilio or Canva.
  • “We think [the B2C to B flywheel] is actually going to be magnitudes faster in acceleration compared to sort of non-AI native companies.” (Janelle, 12:39)

3. Democratization at the Application Layer

[13:48 – 15:20]

• AI Becomes Table Stakes:
  • Unlike previous AI transformations, any company can now embed AI without specialist teams—via APIs or open-source models.
  • “We think that every company will probably be an AI company. That's to say AI will be table stakes in the future.” (Janelle, 14:42)
  • This is likened to past platform shifts, such as the cloud or mobile revolution.
  • AI’s ubiquity will soon rival that of cloud infrastructure or mobile adaptation—no longer a differentiator, but a baseline.

4. Cloud for Good: Climate and the Green Energy Transition

[15:20 – 18:22]

• Cloud x Climate:
  • Climate-focused software—purpose-built to support the green energy transition—is a rising investment theme.
  • Broader ecosystem includes software for solar, EVs, heat pumps, distributed energy, project finance, and built infrastructure.
  • “Climate software helps to drive the green energy transition. And the time really is now.” (Janelle, 16:13)
  • Consumer activism, legislation, and falling renewable prices drive optimism and entrepreneurship in this sector.
  • “Climate software and climate marketplaces did jump, you know, a few degrees higher than in our previous sort of sentiment score.” (Janelle, 18:01)

5. Career & Founder Advice: For the Next Generation

[18:22 – 23:41]

• Pathways to VC and SaaS Careers:
  • Janelle urges aspiring VCs to first get startup experience for empathy and operational insight.
  • “I see venture capital and entrepreneurship...as two sides of the same coin. It is a very intertwined ecosystem.” (Janelle, 18:58)
  • This “Cambrian moment” in SaaS—driven by AI and climate tailwinds—means there’s never been a better time to build, operate, or invest.
• Inspirational Founder to Follow:
  • Melanie Perkins (Canva):
    • Called out as an exemplary global leader and inspiration, not just because Canva is a portfolio company.
    • “Canva is the highest valued female founded startup in the world and Melanie really beat all odds to achieve this milestone.” (Janelle, 21:16)
• Must-Have Tools for SaaS Companies:
  • Janelle recommends that every SaaS team experiment with embedding AI for both productivity and product enhancement.
  • Specifically praises Canva’s new generative AI features for democratizing design and accelerating productive output—“supercharged presentation builder.”
    “I think everyone needs to at least try out the power of AI...It will just, as it’s changed your life, probably change your personal life and also can supercharge your productivity at work.” (Janelle, 23:37)

Notable Quotes & Memorable Moments

• On Gross Margins and Cloud Spend:
  • “Gross margins are set the ceiling for profitability on your business. And we like to say it’s at least one of the most, if not the most important metrics for long term health of any SaaS business, especially those built in the cloud.” (Janelle, 03:22)
• On the AI End-User Revolution:
  • “The ultimate winner in this AI chapter is probably the end user, since AI will create massive consumer surplus.” (Janelle, 07:24)
• On B2C to B and Bottoms-Up Growth:
  • “We actually call the phenomenon...the B2C to B flywheel. This is a business to consumer to business flywheel.” (Janelle, 09:15)
• On The Next Platform Shift:
  • “We think that every company will probably be an AI company. That’s to say AI will be table stakes in the future.” (Janelle, 14:42)
• On Climate Software:
  • “We predict that the emergence of new cloud software will be tailor made to power the energy transition. So very much like vertical SaaS but for climate software.” (Janelle, 16:54)
• On Starting a Career in VC:
  • “You need to be excited about startups as well and really try to learn things from the other side.” (Janelle, 19:09)
• On Optimism for the Cloud Industry:
  • “I think there is a lot of optimism ahead and...this is a Cambria moment for the entire industry and there’s no better time and opportunity to be building in SaaS. So I’m more optimistic about the State of the Cloud than ever before.” (Janelle, 24:24)

Timestamps for Main Segments

• 01:23 – Efficient Growth & Cost Optimization
• 03:16 – Cloud Spend & Gross Margins
• 05:41 – Bessemer’s Tactical Playbook & Resources
• 06:35 – AI’s Value to End Users; ChatGPT Example
• 09:14 – B2C to B Flywheel & PLG for AI Adoption
• 11:18 – AI-Driven Hypergrowth: 100M to $1B ARR
• 13:48 – Democratization of AI at the Application Layer
• 16:13 – Climate Software & Cloud for Good
• 18:22 – Career Advice for Aspiring VCs & Founders
• 20:49 – Leaders to Watch: Melanie Perkins (Canva)
• 22:21 – Must-Have Tools: Embedding AI across SaaS
• 24:15 – Closing Thoughts on Optimism & the State of the Cloud

Resources Mentioned

• State of the Cloud 2023 Report:
  • Find at bvp.com under “Atlas” newsletter
  • Includes 40 tactical efficiency plays, portfolio case studies, and detailed predictions

Summary:
Janelle Teng of Bessemer Venture Partners shares actionable strategies for efficient SaaS growth, provides bold predictions on how AI will revolutionize business and individual productivity, and spotlights the surge in climate-related software innovation. Emphasizing optimism, career advice, and the importance of staying on the edge of technology, Janelle encourages founders and operators to leverage both AI and open platform shifts, and to view this era as a uniquely transformative period for the SaaS and cloud industry.