2016 june disruption in enterprise software final

www.intelcapital.com
Intel Confidential
Investing in global innovation
June, 2016
Disruption in Enterprise
Software
Vibhor Rastogi, Director, Intel Capital
Vibhor.rastogi@intel.com

2 www.intelcapital.com
Intel 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

Intel Confidential
Market Leader
3
* Number Includes New and Follow-on Deals
Investment data as of March 31, 2016

Intel Confidential
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
4Investing $300 - $500 million per year in innovative
companies

Intel Confidential
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

Intel Confidential
6
*other marks and brands are the properties of their respective owners Data as of March 31, 2016
Solid History of Success
212 portfolio companies have gone public; 383 were acquired or participated in
a merger

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

Intel Confidential
Spend on Software growing 2x than Enterprise spend.
Sub-sectors such as SaaS growing at 6x overall IT
spend
$300.00 $317.00 $335.00
$3,673.00 $3,737.00 $3,828.00
$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
$4,500.00
2013 2014 2015
Global spend on Enterprise
Software ($B) vs. ICT spend ($B)
Enterprise Software spend ($B) Total ICT spend ($B)
Source: Gartner

Intel Confidential
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

Intel Confidential
VC investment in Software has grown in the last 5
years due to better liquidity (IPO and M&A)
environment
2009
2012
2014
2015
$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

Intel Confidential
Next-generation software companies trading at
significantly higher multiples of revenue than legacy
software companies
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Market cap ($B)
Microsoft Oracle SAP
Vmware Workday Salesforce
Source: CapitalIQ

Intel Confidential
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

Intel Confidential
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

Intel Confidential
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

Intel Confidential
Agenda
• SaaS/Cloud
• Open Source

Intel Confidential
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

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

Intel Confidential
Improvement in ROI is a significant driver
for SaaS spend

Intel Confidential
SaaS companies need significant capital prior to
a liquidity event
• SaaS is a capital
intensive business
Model
• Median amount
raised by SaaS
companies >$50M

Intel Confidential
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

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

Intel Confidential
Lower compute and storage costs accelerating
adoption of Big data by Enterprises
22

Intel Confidential
Big data problems are a top priority in IT spending
23

Intel Confidential
45ZB of data expected to be created by 2020 which
coupled with cheap compute creates rich datasets for
Cognitive computing/AI
24

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

Intel Confidential
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

Intel Confidential
“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 & Fraud
Alerting
Quality of Service
Management
Consumer
Analytics
DataCenter
Management

Intel Confidential
Next-gen web/mobile applications leveraging data
stored in Big data repositories
Personalized
Gaming/Adtech
Recommendation
Engines
User and Behavior
analytics

Intel Confidential
Agenda
• SaaS/Cloud
• Open Source

Intel Confidential
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

Intel Confidential
Linux and Android grew significantly faster than their
commercial alternatives to dominate the data center and
mobile markets
$-
$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
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
RedHat revenues

Intel Confidential
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

Intel Confidential
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

Intel Confidential
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

2016 june disruption in enterprise software final

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