# Cash is (still) king – Cloudonomics requires that you 10 focus on cash flow above operating profits, and plan your fuel stops very carefully The cash flow characteristics of a cloud business are wonderful in the long term, but can be lousy in the short term. Cloud companies require you to fund research, development, sales and marketing up front in return for a multi-year stream of revenue. This typically demands enough invest- ment capital (over stages) to fund 4+ years of runway before a company can achieve positive cash flow (GAAP profit is even longer). Imagine you are flying a private plane from Silicon Valley to Wall Street (which sometimes is the figurative or literal goal), and you need to stop a couple of times for fuel (investment capital) for the trip. It is critically important Greg Becker that you plan your equity and debt financing events in advance to maxi- CEO, Silicon Valley Bank mize value and minimize dilution. “We believe we’re still in the early Understanding the cash flows of your business – including Gross and Net days of the Cloud Computing revolu- Burn Rate – is critical to survival in the early days and critical to your tion, and are eager to bank the future dominance in the long term. There have been many promising cloud leaders of this next wave. We are big startups that stepped on the gas too early and were wiped out as a result. supporters of Bessemer’s cloud metrics and laws, and have actually developed Always model the business with a comfortable cash cushion and recog- specialized lending products designed nize that most cloud businesses paradoxically consume more short-term around them. We have already loaned cash as growth accelerates. As a business, it is critical to weigh forward tens of millions of dollars to Bessemer investments carefully. Cloud businesses typically require multiple rounds companies behind these metrics, often in cases where other banks couldn’t be of investment and a good amount of capital. For example, it took $126M competitive because they still focused for NetSuite to go public, $61M for Salesforce.com, $41M for Eloqua, and on legacy software metrics.” $45M for Cornerstone OnDemand. We are now seeing a second generation of cloud businesses that have the potential to be more efficient than many of their predecessors by leveraging Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS) to out- source more and shift many startup costs to variable models. However, even in most of these cases, significant Steven Kokinos CEO, ThinkingPhones “We were able to grow ThinkingPhones into a profitable business off of some very modest friends and family capital years ago. However, our CAC and CLTV metrics were good and our market is massive, so we decided to raise money from Bessemer to re- ally lean into the business to seize the full opportunity.” Bessemer Venture Partners 24